Legal Question in Real Estate Law in California
Can an LLC qualify for an FHA loan? Here is the scenario: four people (two married couples) want to buy a fourplex together. Couple A has more saved for a down payment and a good work history but aren't sure of their work future (both masters students soon to be looking to utilize their degree). Couple B has steady jobs and only about half of what Couple A has saved up. Couple B cannot live in the home because one is a manager of an apartment building. Can these two couples form an LLC and apply for an FHA with Couple A living in one of the units? An LLC so that it is safer for both parties and there is the option for one to buy the other out if necessary or desirable.
2 Answers from Attorneys
There is no legal impediment that I know of, but I think you will find you have problems with the lenders. I'm not sure they make FHA loans for investment properties. You should take this up with a good mortgage broker, since it is really a mortgage underwriting issue than a legal one. Another solution you may want to consider is a Tenants in Common agreement. That is very popular up here in cities that have condo-conversion moritoriums such as Berkeley and San Francisco.
As I understand it, FHA loans are made for one-to-four unit owner-occupied residential properties. Since an LLC cannot be an occupant, I'd say it is an ineligible borrower.
However, don't let lack of an FHA loan deter you....there are plenty of loan programs out there with pretty attractive rates at this point (11/11/2010). Talk to a variety of lenders.
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