FHA Commercial Loan for Mixed Use Properties
You can buy a mixed use or commercial property with an FHA loan if at least 51% of the property is being used for residential housing.
An FHA commercial loan is for the purchase of a primary residence that also has a legal commercial or mixed use space attached.
Can you Get an FHA Loan on a Commercial Property?
FHA loans are for single family, or multi-unit primary residences, but you can still use FHA financing of a portion of the building is used for commercial purposes.
Home buyers must qualify for the mortgage according to the standard FHA loan requirements. The appraisal will need to follow specific guidelines as outlined down below.
FHA Commercial Loan Requirements
If you are interested in purchasing a home that also has commercial space attached, there are requirements that must be met. Some of these requirements are about how to qualify for an FHA loan, plus requirements for properties with commercial spaces.
These are the FHA Commercial Loan Requirements:
- You must have a two year work history
- You will need to fully document your income with pay stubs, W2s and tax returns
- The home must be your primary residence
- 75% of the rent from the commercial unit can be used to qualify for the mortgage
- The property must be purchased in your name and cannot be owned by a commercial enterprise
If the property needs work, you can apply for an FHA 203k rehab loan. However, the 203k rehab cannot be used to refurbish a commercial space that will benefit the tenant that will occupy that space. For example, you can rehab the space by replacing the electrical, plumbing, etc. However, you cannot build out the space to accommodate a specific type of business.
FHA Mixed Use Property Guidelines
A Mixed-Use property is one that has more than one of the following types of units included:
- Residential
- Commercial
- Retail
- Office
- Parking spaces that can be rented
For an FHA loan, at least one of the units in the building must be residential. That unit also must be occupied by the buyer as their primary residence. There can be no more than a total of four units combined.
For an FHA approval of a mixed use property, at least 51% of the total square feet of the building must be designated as residential. This will be identified by the appraisal.
The other important requirement is the business that occupies the commercial space cannot create a hazardous or unpleasant condition for the individuals who live in the residential portion of the building.
Not all lenders are willing to finance a mixed use property despite the fact that mixed use properties are included as acceptable within the FHA guidelines.
FHA Appraisal Guidelines for Commercial or Mixed Use Properties
If you are looking to purchase a commercial or mixed use property with an FHA loan, it is important for the appraiser to accurately detail what percentage of the property is considered to be residential.
At least 51% of the building must be residential to qualify for FHA financing. The FHA appraiser will need to provide calculations and measurements and include a sketch of the building. That sketch much clearly define how many square feet are dedicated towards residential and commercial.
The FHA appraiser will need to provide a written statement which whether the commercial space will or will not affect the health and safety of the occupants of the residential portion of the property.
The appraiser should not include in the appraisal, the valuation of the business that occupies the commercial space or the property and fixtures that belong to the business.
FHA Loan Commercial Zoning
FHA guidelines do not require properties to be zoned as residential to be eligible for financing.
What is most important is the use of the property must be primarily residential with the commercial portion as secondary to the residential units.
The appraisal will also determine whether the property is eligible in that it must conform to the local zoning requirements in the town. For example, if the property was at one time converted from a single family home to a mixed use property, that property must meet the current zoning standards within the town. Meaning, it must be a legal property from the perspective of the local building department.
Summary
An FHA loan for a commercial or mixed use property is possible if both the borrower and the property can meet the minimum standards to qualify. The appraiser will play a significant role in deciding whether the property is eligible for FHA financing.
