Mixed Use Properties financed using FHA's 203(k) Loans
What is Mixed Use? Simply put, a mixed use property is any real estate that has a combination of both residential and commercial units.
Many people don’t realize that they can purchase a mixed use property using FHA's 203(k) Rehab Loan. Many buyers think they will need a commercial loan with a large down payment to buy a mixed use property even if the majority of the income produced is from the residential section of the property.
OK.....Here is the MOST exciting Part:
The commercial space is not counted as a unit in determining if the property is to be treated as a single family, duplex, triplex, etc. Therefore, a property with four residential units above a commercial space is considered a four unit and can be financed using FHA's 203(k) rehab loan with only 3.5% down payment.
One thing to remember, the buyer will need to occupy one of the residential units as their primary residence. They may not already have an FHA loan on a property already owned by the buyer.
This is an amazing opportunity for buyers to buy their primary residence while at the same time investing in commercial property using a residential loan.
If you were to compare general commercial loan terms to an FHA 203(k) loan, you'd realize that the FHA 203(k) loan is much for favorable in most cases:
| Commercial Mixed Use Loans | FHA 203(k) Rehab Loan Mixed Use |
| Term - fixed rate: 2, 3, 4, 5, 6, 7 & 8 Yrs | Term- 30 Year Fixed or 5/1 ARM |
| Adjustable rate available | Adjustable rate available |
| Amortization: 20, 25, and 30 years | Amoritization: 30 years |
| Prepayment: Multiple options | No Pre-Payment Penalty |
| Loan to Value Ratios: 75% for most loans | Loan to Value Ratios: 96.5% |
Eligibility Crtiteria:
· Property must be marketed and currently used as residential. (conversion from commercial to mixed use not eligible)
· The floor space used for commercial purposes cannot exceed:
· 25% for a 1-story building
· 49% for a 2-story building
· 33% for a 3-story building
· Zoning must be mixed use as determined by the appraisal
· Commercial space cannot affect the health and safety of residential occupants.
· Rehab funds can only be used for residential functions of the dwelling and areas used to access the residential part of the property.
· Commercial rent may be used as income IF space is currently being used as commercial enterprise and has a valid lease that will continue.
· Appraisal Requirements
· Appraisal must be completed on FHA Appraisal Form 1025
· Like comparable sales in the area must be available and used on the appraisal
· Appraised value assigned must be completed as if the total property is for residential use
Below is a chart for the "High Cost" counties in California which specifies the MAX loan limit depending on the number of "Residential" units for the Mixed Use Property:
| FHA LOAN LIMITS BY COUNTY | One-Family | Two-Family | Three-Family | Four-Family |
| Alameda | $ 729,750.00 | $ 934,200.00 | $ 1,129,250.00 | $ 1,403,400.00 |
| Contra Costa | $ 729,750.00 | $ 934,200.00 | $ 1,129,250.00 | $ 1,403,400.00 |
| Los Angeles | $ 729,750.00 | $ 934,200.00 | $ 1,129,250.00 | $ 1,403,400.00 |
| Marin | $ 729,750.00 | $ 934,200.00 | $ 1,129,250.00 | $ 1,403,400.00 |
| Monterey | $ 729,750.00 | $ 934,200.00 | $ 1,129,250.00 | $ 1,403,400.00 |
| Napa | $ 729,750.00 | $ 934,200.00 | $ 1,129,250.00 | $ 1,403,400.00 |
| Orange | $ 729,750.00 | $ 934,200.00 | $ 1,129,250.00 | $ 1,403,400.00 |
| San Benito | $ 729,750.00 | $ 934,200.00 | $ 1,129,250.00 | $ 1,403,400.00 |
| San Francisco | $ 729,750.00 | $ 934,200.00 | $ 1,129,250.00 | $ 1,403,400.00 |
| San Mateo | $ 729,750.00 | $ 934,200.00 | $ 1,129,250.00 | $ 1,403,400.00 |
| Santa Barbara | $ 729,750.00 | $ 934,200.00 | $ 1,129,250.00 | $ 1,403,400.00 |
| Santa Clara | $ 729,750.00 | $ 934,200.00 | $ 1,129,250.00 | $ 1,403,400.00 |
| Santa Cruz | $ 729,750.00 | $ 934,200.00 | $ 1,129,250.00 | $ 1,403,400.00 |
For additional information about loan limits in other counties please visit: https://entp.hud.gov/idapp/html/hicost1.cfm
Please contact me with questions.... I love to discuss different sceanrios and see how I may make them work for you. I am 203(k) certified.... My motto: you won't know unless you ask.
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