Certificate of Occupancy and FHA Loan Guidelines

by Sue Burns in Vestal, New York and by Gretchen in Hatillo, Puerto Rico

Ask Kate if a certificate of occupancy is required by FHA loan guidelines: Home buyers want to buy a house that is a converted garage. Can they can get an FHA loan without a certificate of occupancy? After Gretchen bought a home, she was forced to move her family out while she repaired a crumbling ceiling using $35,000 from her savings. Now the lender tells her she is not eligible for special mortgage programs since the house was vacated. SAY WHAT?


FHA Financing with No Certificate of Occupancy

By Sue Burns from Vestal, NY
FHA Financing with No Certificate of Occupancy

Hi Kate,

I have buyers who want to buy a property that had a large garage converted to a temporary housing.

They didn't get a certificate of occupancy since they were planning to build a larger home on the land.

It has well and septic and is finished with one bedroom, one bath, a furnace etc.

They want an FHA loan. Is this possible without a certificate of occupancy?

Sue Burns

***zz-portrait-left.shtml*** Ask Kate answers: FHA Financing with No Certificate of Occupancy

Hi Sue,

For the benefit of others who are reading your letter, let me pause to explain the significance of the certificate of occupancy (COE).

Also known as a final permit, it is the document issued by a local governing body, such as a county, that certifies a house is in compliance with building codes and suitable for occupancy.

FHA, Lender, and Certificates of Occupancy

But you should know that not only could FHA be unwilling to insure a mortgage on a garage converted to a house, the lender also may have an issue with the fact that no final permit was issued.

Insurance and Certificates of Occupancy

Then there's also the matter of the title company. If the only structure (improvement) that appears on the title history is a garage, your buyers might have a difficult time getting title insurance that satisfies loan approval.

Don't forget to talk with a homeowner's insurance agent to see if the structure is sufficiently insurable.

FHA Rehab Loans and Certificates of Occupancy

Additionally, the FHA rehab loan (203k) intended to help borrowers buy and repair fixer-uppers in all-in-one transactions, is only allowed on properties that were originally issued a certificate of occupancy. Read more about the FHA rehab loan (203k).
I was once involved in a refinance application similar to your transaction. You can read about it at Certificate of Occupancy: Surprise! It's a Barn!.

For those coming to this page because they are searching for their missing final permit, see what I told Cheryl from Atlanta, Georgia who could not locate her COE: Where Can I Find My Certificate of Occupancy.

Look to Locals for More Help

Of course, I seldom suggest someone throws up their arms and quits seeking ways to buy a home that they truly want and can afford, especially since I do not have all of the details.

So in addition to running the scenario past a local title insurance company, I hope you'll contact the most experienced government loan originator in your city and ask if there is any hope that your home buyers could still get FHA financing on this property.

Best wishes,


FHA Mortgage on a Crumbling Home

By Gretchen from Hatillo, Puerto Rico
FHA Mortgage on a Crumbling Home


I financed my house through an FHA mortgage in 2009.

My house began falling apart on 2012 due to corrosion on the concrete ceiling steel bars. I asked the bank about any insurance that could cover this hidden damages and the response was that there was none.

My choices were to fix it by myself or stop paying the bank such that I would lose it through foreclosure. I decided not to lose the property and started to fix it.

I had to move out since the ceiling was falling apart. That increased my monthly costs since I had to rent a safe house for my family and also pay for the major repairs. I was told by the bank that I was not eligible for any of their special programs because my family moved out of the house.

I was offered a re-payment program to avoid foreclosure since I was late 5 months. The repayment plan is $1,100 a month for six months. My mortgage is $625 a month. I was told that refinancing would not lower my monthly payments and that I would have incurred closing costs.

Can you give me a good advice to pursue after I complete the 6 month payment plan? I have already spent 35k in repairs.

***zz-portrait-left.shtml*** Ask Kate answers: FHA Mortgage on a Crumbling Home

Hi Gretchen,

Don't feel you must accept the bank's nonsense about not being eligible for special mortgage programs because you were forced to moved your family out of the house.

You did not vacate the house to convert it to an investment property. For goodness sake, your family had to be re-located to ensure their safety, in particular, their skulls.

If the bank won't listen to you, find an attorney who accepts pro bono cases and ask for help talking sense into the lender.

But first, read about these borrowers who also needed pro bono representation:

HAMP Loan Modification Program

Even if you had rented out the house, the HAMP loan modification program could still be applicable. Learn about getting an affordable payment at HAMP loan Modification for Affordable House Payments.
Trust your gut! When you think you smell a rat, well... you just might, so to speak. Read how a HAMP Loan Modification Scheme was exposed at a major lending institution.
Best wishes,


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