How Many Times Can You Get an FHA Loan?
Uncover the complexities of obtaining multiple FHA loans. Learn the general rules, specific exceptions, and key qualifications for securing a subsequent FHA mortgage.
An FHA loan is a mortgage insured by the Federal Housing Administration, designed to make homeownership more accessible. These loans often appeal to first-time homebuyers or individuals with lower down payments or credit scores due to more lenient qualification criteria. While generally limiting borrowers to one FHA-insured mortgage at a time, specific exceptions permit holding more than one.
The Standard Rule: One FHA Loan at a Time
The fundamental principle governing FHA loans is that the financed property must serve as the borrower’s primary residence. This owner-occupancy requirement means that at least one borrower must occupy the property within 60 days of closing and intend to reside there for at least one year. This rule is outlined in HUD 4000.1, the FHA Single-Family Lender’s Handbook, which emphasizes that FHA loans are meant to promote homeownership rather than facilitate real estate investment.
If a borrower currently holds an FHA loan on a property they occupy, they are generally restricted from obtaining another FHA-insured mortgage for a different property. FHA guidelines aim to prevent borrowers from using the program to accumulate multiple investment properties. Any attempt to circumvent these restrictions, such as acquiring an FHA loan with the intent to rent out the property immediately, may lead to consequences for the borrower.
Exceptions Allowing Multiple FHA Loans
Despite the one-loan-at-a-time rule, the FHA recognizes specific circumstances allowing a second FHA-insured mortgage. These exceptions require meeting particular conditions, and the new property must still be the borrower’s primary residence.
The exceptions include:
Relocation due to employment: If a borrower needs to move for a new job that is a significant distance from their current FHA-financed home, they may qualify for a second FHA loan. This allows them to purchase a new primary residence if the relocation creates a commuting hardship from the current home.
Increase in family size: If a borrower’s family has grown significantly and their current FHA-financed home no longer adequately meets their needs, they may be eligible for a second FHA loan. The FHA may also require that the loan-to-value (LTV) ratio on the existing FHA-insured property is 75% or less.
Vacating a jointly-owned property: If a co-borrower on an existing FHA loan needs to purchase a new primary residence independently, they may be eligible for a new FHA loan. This applies if the original co-borrower assumes full responsibility for the existing mortgage or if the property is being sold.
Federally declared disaster: A borrower whose FHA-financed home has been substantially damaged by a federally declared disaster may be eligible for a new FHA loan to acquire another primary residence.
Meeting Requirements for a Subsequent FHA Loan
Even when one of the FHA’s exceptions allows for a second FHA loan, borrowers must still satisfy the standard eligibility criteria for the new mortgage. The primary requirement remains that the newly purchased property must be intended and occupied as the borrower’s primary residence. This ensures adherence to the FHA’s core mission of promoting owner-occupancy.
A borrower’s credit score and payment history are important considerations for the new loan application. While FHA loans are generally more forgiving than conventional loans, lenders will review the borrower’s financial reliability. A minimum credit score of 580 is typically required for the lowest down payment. Maintaining a good payment history on existing debts, including the first FHA mortgage, demonstrates financial responsibility.
The debt-to-income (DTI) ratio is another critical factor. Lenders will calculate the borrower’s DTI by considering all existing debt obligations, including the first FHA mortgage if it remains active and is not being sold or leased, alongside the proposed new mortgage payment. A borrower’s total monthly debts, including both mortgage payments, should generally not exceed 43% of their gross monthly income. This ensures the borrower can reasonably manage the financial burden of two mortgages.
The new property itself must also meet FHA’s minimum property standards and undergo an appraisal. This appraisal verifies the property’s value and ensures it meets safety, soundness, and security requirements. The FHA also requires mortgage insurance premiums (MIP) on all FHA loans, which will apply to the new loan as well. This includes an upfront mortgage insurance premium, typically 1.75% of the loan amount, and an annual premium paid monthly.
The application process for a second FHA loan is similar to the first, requiring a full application and underwriting review. Borrowers will need to provide financial documents such as income verification, asset statements, and details of their existing debt obligations. Lenders will thoroughly assess the borrower’s financial capacity to manage the additional mortgage payment, ensuring they meet all FHA and lender-specific guidelines for the subsequent loan.