Posted by Les Kline on October 05, 2003 at 10:13:49:
FHA, and an appraiser, would look at not only how the unit is being used, but what it’s designed or intended use is. As long as it looks and smells like an apartment, it will be classified as an apartment.
If you actual do modify it for some other use, then you run into the problem of it being classified as a mixed-use property and you’re into a commercial loan.
The only sure and legal way (that I can see) of getting past these obstacles would be to integrate the space of the fifth unit into the living area of the other units, so that in fact there are only 4 residences. This would require changes to your zoning and tax records, as well as possible changes in the appraised value.
Hope this helps.