I’m appraising a house right now that is nearly 400 square feet (the size of a 2-car garage). Would this house qualify for FHA financing or is it too small? Put your Jeopardy skills to the test because I have a quiz for you below.
What is the smallest house you can purchase with an FHA loan?
A) 500 sq ft
B) 666 sq ft
C) 300 sq ft
D) 400 sq ft
E) Other
There is only one correct answer above, and if you guessed “Other” you are correct. Straight from the HUD Handbook, “FHA does not have a minimum square footage requirement for a home to be eligible for FHA financing (except that a manufactured home must have a minimum size of 400 square feet to qualify for FHA financing). FHA only requires that a home be marketable in the area and have adequate space necessary to assure suitable living, sleeping, cooking and dining accommodations and sanitary facilities.” Handbook 4905.1 REV1, Section 2-9
I hope this was helpful. If you’re looking for more information on FHA property or appraisal standards, you can check out other FHA appraisal articles I’ve written.
Bonus Question: Is it possible to get an FHA loan on a hobbit house as pictured above (or any below-grade house)? I’d love to hear your take. The answer will be found in discussion in the comments.
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My guess is no you will not be able to get a loan on a hobbit house unless the area has other hobbit houses to compare it to. I believe it becomes a non warrantable property due to the rarity. Same thing with Dome homes or Yurts unless your in an area where the appraisal can find similar homes. Also in Sacramento some units I believe like Timberlake (outside of the investor issues), have size issues because appraisers cannot find a comparable unit outside of the complex which leads to the loan issue, they are too small and not the normal for the marketable condo market around them. Of course that’s just my opinion and I am not an appraiser..lol
Well said, Bruce. I always appreciate your thoughts. You’re right that it all boils down to whether the property is marketable or not. Additionally, one interesting point to consider is that a hobbit house would technically be below-grade, which would seemingly rule out a home like this because FHA defines living area to be space above grade. However, an exception can be made for a unique home despite being below-grade, BUT it still comes down to marketability. Are there similar units available for comparison? That’s the key.
Interesting thoughts on Timberlake. There sure are some small units in there (if I’m not mistaken the smallest unit is just under 500 sq ft).
A reference for some of the thoughts above: “Sometimes a unique property, such as a log home, an extra small home, lower than normal ceiling heights, etc., is submitted for FHA insuring. The eligibility of these properties depends on whether or not the property is structurally sound and readily marketable. If a property meets these criteria, the appraiser establishes market value. However, depending on the uniqueness of a property, the final determination to accept or reject the house is made by the lending institution’s underwriter. Handbook 4150.2, Section 4-4”
All great questions Ryan. I don’t think I have seen a 400 sf. house…….yet. Just as soon as I say that I will get a job for one :)Just curious, what was the floor plan like on the house?
I hear you, Tom. I hadn’t either until this one. My smallest before was maybe around 500 sq ft. The layout was much like a studio apartment. 75% of the rectangle was a Living Room/Bedroom and the other 25% consisted of a kitchen and bathroom. Tiny and atypical.
Did you mean you can apply for an FHA loan with a 500 sq ft house?
Hi Boe. I think the answer is likely going to depend on the market. I don’t honestly recall whether a 500 sq ft went FHA or not as this post was 4.5 years ago. However, I would not think a house would be automatically disqualified from financing just because it is 500 sq ft – especially in a more urban setting where people regularly buy smaller homes. However, if literally everything else everywhere in the neighborhood and surrounding market is 1000 sq ft, it could be challenging to prove there is not a marketability issue with something that is uncommonly small. Thus that’s why I would say it comes back to the market. If there are some other sales of somewhat similar size, it would show the market accepts homes that small. If there are not, then FHA / HUD might wonder if there is a marketability problem (which could be an issue for obtaining an FHA loan).