We will buy a multi-unit property using an FHA loan. The loan requires us to live at the property for the first year. If we buy a property that is fully rented, what do we do? Post a 30 day move out notice? Stick it out until the end of the contracts? Not buy the property?
How does it work? Please advise.
Thanks!
If the tenants have leases with a term remaining (say their lease was for a year and it’s only 5 months into it when you purchase the building), those leases - and the terms of those leases - will convey to you as the new owner. You will have to honor those if the tenants want to stay. You could always try to buy them out of the lease, but there’s no guarantee they’ll leave.
If anyone there is on a month to month lease, you could make it a point in the purchase contract for the seller to give the tenant proper notice and turn over the property to you with a vacant unit. If you don’t live there as required by the loan, that would be mortgage fraud because you would be attempting to use a loan program with certain requirements (that you live in the unit for 1 yr) but you wouldn’t be living up to your end of the deal.
Most leases I have seen have terms in them that state that the lease immediately ends at the sale or foreclosure of the house, but you may have to evict if they decide not to leave.
Watch the wording in the contracts, most not all contracts contain the word “Intent” you might be able to use that to you advantage. With all the changes with the FHA rules this may have been changed.
During underwriting it will be discovered that there is tenant in the house and they won’t approve the loan to actually fund until they have determined that you can move into the house. Your loan will not fund without evidence that you can move into the house.