FHA Update: Non-Permanent Residents No Longer Eligible

Important FHA Loan Update

The Federal Housing Administration (FHA) has issued an important policy update that will impact borrower eligibility for FHA-insured mortgages. Mortgagee Letter 2025-09, released on March 26, 2025, outlines a significant change to residency requirements for FHA Title II Single Family forward and reverse mortgage programs. The key takeaway? Non-permanent residents will no longer be eligible for FHA-insured mortgage financing.

This article breaks down what’s changing, who it affects, and what you need to know if you’re a borrower in Pennsylvania or Florida planning to use an FHA loan.

🔁 What Changed?

The update removes eligibility for non-permanent resident borrowers and tightens documentation standards for lawful permanent residents. Here’s a summary of the most significant changes:

❌ Elimination of Non-Permanent Resident Eligibility

Previously, non-permanent residents could qualify for FHA loans if they met certain documentation requirements (like having a valid work visa). Effective May 25, 2025, that option will no longer exist. Non-permanent residents, even with legal work authorization, will no longer be eligible for FHA-insured mortgages. The affected programs include:

• FHA Title II forward mortgages
• Home Equity Conversion Mortgages (HECMs)

This change impacts purchase, refinance, and reverse mortgage transactions.

✅ Updated Guidelines for Permanent Residents

Borrowers who are lawful permanent residents (i.e., green card holders) remain eligible, but they must now meet the same requirements, terms, and conditions as U.S. citizens. Additionally, their mortgage files must include:

• Proof of permanent resident status from the U.S. Citizenship and Immigration Services (USCIS)
• Confirmation that they are listed as permanent residents on the Uniform Residential Loan Application (URLA)

Exceptions for Certain Citizens

Citizens of the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau are still eligible for FHA financing under Compact of Free Association agreements. These borrowers must provide proof of citizenship but are otherwise treated as U.S. citizens in terms of mortgage eligibility.

📅 When Does This Take Effect?

The changes outlined in Mortgagee Letter 2025-09 go into effect for case numbers assigned on or after May 25, 2025. Mortgagees (lenders and brokers) may implement the policy immediately but must comply no later than that date.

💬 Why the Change?

The policy update aligns with federal executive orders and priorities focused on safeguarding economic opportunities and access to federal benefits for U.S. citizens and lawful permanent residents. The Department of Housing and Urban Development (HUD) cited the need to ensure borrowers have the ability to make long-term financial commitments and maintain legal residency throughout the life of the loan.

In short, FHA wants to reduce risk by ensuring loans are extended only to borrowers with a secure, verifiable immigration status.

🧾 Impact on Documentation and Loan Processing

This change will likely lead to stricter underwriting reviews when it comes to verifying borrower residency. Social Security cards alone will no longer be accepted as proof of legal status. Instead, loan files must include official documentation from USCIS, such as:

• A valid green card (I-551)
• Evidence of permanent resident status directly from DHS

For reverse mortgage (HECM) loans, the same documentation is required.

🔄 What About Streamline Refinances?

The FHA also updated language surrounding non-credit qualifying streamline refinances:

• These refinance loans are still allowed when all borrowers on the original FHA loan remain on the new mortgage.
• Certain documentation requirements have been removed for non-credit qualifying streamlines, simplifying the process in those cases.
• However, borrower eligibility is still subject to the updated residency requirements.

💡 What This Means for You as a Borrower

If you’re planning to apply for an FHA loan in Pennsylvania or Florida, it’s important to understand how your residency status may impact eligibility.

• S. citizens and lawful permanent residents: No changes to eligibility, but make sure your documentation is in order.
• Non-permanent residents: Unfortunately, you will no longer qualify for FHA-insured mortgages after May 25, 2025.
• Mixed-status households: If one borrower is a non-permanent resident and another is a citizen or permanent resident, the entire application may be ineligible under FHA guidelines.

🏡 Need Help Navigating These Changes?

At Innovative Mortgage Brokers, we work with a wide range of lenders and programs, not just FHA. If this update impacts your ability to qualify for an FHA loan, we may still be able to help through conventional or non-QM (non-qualified mortgage) programs designed for self-employed borrowers, investors, and even some non-permanent residents (depending on the product).

We’re committed to making the mortgage process easy, transparent, and tailored to your unique situation — especially as lending guidelines continue to evolve.

Let’s navigate this together — and get you closer to homeownership or refinancing with clarity and peace of mind.