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Can You Get An FHA Loan For A Commercial Property?

Melissa Brock3-minute read

May 20, 2021

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As you consider purchasing a commercial property, you may wonder about your lending options. You may not want to go the conventional loan route and may want to consider alternative options. The Federal Housing Administration (FHA) backs loans under the jurisdiction of the Department of Housing and Urban Development (HUD). This means that the FHA protects your lender against loss if you stop making your mortgage payments.

Can you get an FHA loan for a commercial property? Let's learn some of the FHA guidelines for commercial loans and find out whether FHA commercial loans actually exist. It’s important to note that Rocket Mortgage® does not offer loans for commercial property.

Do FHA Commercial Loans Exist?

First of all, the Federal Housing Administration (FHA) insures mortgages for single-family, multifamily and residential care facilities.

The FHA does not grant loans for purely commercial properties, but borrowers can tap into FHA loan commercial property funding for some mixed-use properties that include a commercial element. Mixed-use properties refer to properties intentionally used for a variety of purposes, including commercial, residential, retail, office or parking space. In other words, The FHA can and does approve loans on commercially zoned buildings deemed “primarily residential” in nature.

For example, a multi-story building with first floor commercial space and apartments on the second floor may qualify for an FHA commercial loan.

When Does A Commercial Property Qualify For FHA Financing?

FHA requirements do allow for commercial property purchases as long as they fall within certain guidelines and as long as they remain predominantly residential in nature. It all comes down to the appraisal, which means that the appraiser ultimately determines whether an FHA home loan makes sense for a particular property. Read on for a few more qualifications.

Must Be A Primary Residence

The property must be a primary residence to qualify for FHA funding. In other words, the primary residence serves as your principal residence, or where you live for most of the year.

A few different types of residences could qualify, including owner-occupied multifamily homes, or a residential property that contains more than one housing unit. Multifamily units could include a duplex, semi-detached house, townhouse or apartment complex.

Nonresidential Use Must Be Secondary

Borrowers must demonstrate that commercial use of the property will stay secondary to the primary use of the property as a residence. Note that this may include a home office space or store.

Mixed-use single-family properties can qualify for FHA loan for commercial property as long as:

  • Borrowers will use a minimum of 51% of the entire building square footage for residential use.
  • It has legal and legal nonconforming status.
  • It conforms to local zoning laws.
  • Commercial use will not affect the health and safety of the occupants of the residential property.

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The Importance Of Your Appraisal

The approval for an FHA loan ultimately comes down to your appraisal as you try to qualify a particular property as mixed-use. The appraiser deems the property appropriate for an FHA loan for commercial property and has the last say in whether it meets the qualifications.

What is an FHA appraisal, exactly? An FHA appraisal involves providing a value for the home in question and completing some basic safety inspections. It's not as complete as an inspection appraisal, however. The appraiser takes building components into consideration and compares it to other similar properties.

In other words, let's say a commercial mixed-use property has a first-floor retail component, second-floor office space and a multifamily living area on the third floor. The appraiser will consider property size, age, construction type, condition and more and compare it to other properties with like characteristics to determine its value and whether it meets the qualifications.

The appraiser's analysis must even consider external influences, such as zoning ordinances and even factors such as the noise level of a commercial property that might affect the owner or occupant.

The Bottom Line: Commercial FHA Loans Come With Caveats

While the FHA insures mortgages for single-family, multifamily and residential care facilities, the FHA does not grant loans for borrowers who want to buy wholly commercial properties. However, borrowers can tap into an FHA loan for certain mixed-use properties that include a commercial element. To put it another way, the FHA can and does approve loans on commercially zoned buildings deemed “primarily residential” in nature.

 

Getting an FHA loan for a commercial property can seem complicated. If you want to finance a commercial property or have just started getting into real estate investing, you may want to learn more about how to buy an investment property.

Do you think an FHA loan fits your needs? Apply for an FHA loan online and learn more about your mortgage options. You can also learn more about other loan types available.

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Melissa Brock

The Rocket Mortgage Learning Center is dedicated to bringing you articles on home buying, loan types, mortgage basics and refinancing. We also offer calculators to determine home affordability, home equity, monthly mortgage payments and the benefit of refinancing. No matter where you are in the home buying and financing process, Rocket Mortgage has the articles and resources you can rely on.