Converting a commercial loan to an FHA loan in the United States is generally only feasible if the property meets specific eligibility criteria. The property must be classified as residential or multifamily (1–4 units) and comply with FHA guidelines. Key steps include securing an FHA-approved lender, meeting credit score requirements (typically 600+), providing a 3.5% down payment for loans under $125,000, and passing a property inspection. Lenders may also impose additional fees or terms due to the complexity of converting commercial loans.

The primary challenge lies in the property’s classification and compliance with FHA standards. Commercial loans often involve non-residential properties (e.g., offices, retail spaces), which are ineligible for FHA financing. However, multifamily properties (e.g., apartments) may qualify if they meet FHA’s occupancy and use requirements. According to the U.S. Department of Housing and Urban Development (HUD), only 12% of commercial loans were converted to FHA programs in 2022, reflecting strict eligibility barriers. FHA loan limits for 2023 range up to $929,650 in high-cost areas, limiting conversion to properties within these thresholds. Additionally, the average FHA refinance rate in Q1 2023 was 7.0%, slightly higher than conventional loans, influencing borrower decisions. Data from the Urban Institute highlights that multifamily FHA loans accounted for 8% of total multifamily originations in 2022, underscoring niche market opportunities. Conversion success hinges on property eligibility, lender willingness, and adherence to FHA’s 203(k) or 223(a)(7) programs for repairs or multifamily upgrades.