FHA Tightens the Rules: Non-Permanent Residents No Longer Eligible for FHA Loans

FHA loan access denied: A new policy change bars non-permanent residents from eligibility starting May 25, 2025.

In a major policy shift, the Federal Housing Administration (FHA) has updated its residency requirements, narrowing the eligibility for FHA-insured loans. Effective for case numbers assigned on or after May 25, 2025, this change eliminates eligibility for non-permanent residents, limiting FHA financing to U.S. citizens, lawful permanent residents, and select citizens from specific Pacific Island nations. Here’s what that means for buyers, lenders, and real estate professionals.

🏠 What Changed?

According to Mortgagee Letter 2025-09, FHA has:

✅ Eliminated eligibility for non-permanent residents.✅ Updated documentation requirements for permanent residents and Pacific Island citizens.✅ Revised sections of the FHA Single Family Housing Policy Handbook (HUD Handbook 4000.1) to reflect these changes.✅ Aligned its policies with recent federal executive priorities, focused on protecting long-term financial stability and government-backed loan integrity.

📌 Who Is Still Eligible?

The following groups can still access FHA-insured mortgage products:

• U.S. Citizens

• Lawful Permanent Residents (must provide USCIS documentation)

• Citizens of the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau

These individuals are subject to the same underwriting requirements as U.S. citizens, and their mortgage files must include proof of eligibility and updated documentation via the Uniform Residential Loan Application (URLA) or Reverse Loan Application (RLARM), depending on the product.

❌ Who No Longer Qualifies?

Non-permanent residents—those holding temporary visas or uncertain immigration status—are no longer eligible for FHA-insured loans under any Title II Single Family programs, including:

• Forward Mortgages

• Home Equity Conversion Mortgages (HECM) (aka reverse mortgages)

• Streamline Refinances, even in non-credit qualifying situations

🔍 Why the Change?

The stated rationale is that non-permanent residency carries immigration-related uncertainties that may compromise a borrower’s long-term ability to meet mortgage obligations. Since FHA-insured loans are long-term federal commitments, HUD has determined that stable and lawful residency is a necessary criterion to safeguard taxpayer resources and program integrity.

The policy also reflects broader federal priorities to reserve government benefits for U.S. citizens and lawful permanent residents, as emphasized in recent executive actions.

💼 Implications for Real Estate Pros and Lenders

If you're a real estate broker, loan officer, or housing counselor, you need to:

• Review all applications carefully for updated residency documentation.

• Educate potential borrowers—especially those with unclear immigration statuses—on their financing options.

• Update internal checklists and loan application review processes by the May 25, 2025 effective date.

Lenders must also remove previously applicable underwriting procedures for non-permanent residents from their internal policies.

📅 Effective Date

The new residency rules must be applied to all FHA case numbers assigned on or after May 25, 2025. Early adoption is allowed but not mandatory prior to that date.

📝 Final Thoughts

This shift could significantly affect many aspiring homeowners who previously qualified under non-permanent resident guidelines. It’s more important than ever for real estate professionals and housing counselors to stay updated, clarify borrower qualifications early in the process, and assist clients in finding the most suitable financing paths.

For more information, visit the official NAR Update on Residency Changes or read Mortgagee Letter 2025-09.