How Often Can You Use an FHA Loan?

Federal Housing Administration (FHA) loans help individuals achieve homeownership, especially those who might struggle with conventional mortgages. These government-insured loans offer flexible qualification criteria, making housing more accessible. They are a common choice for many, including first-time homebuyers, due to their less stringent requirements compared to other loan types.

The FHA, part of the U.S. Department of Housing and Urban Development (HUD), insures these loans, which private lenders issue. This government backing reduces risk for lenders, allowing them to offer mortgages to a broader range of borrowers. This framework helps individuals with lower credit scores or limited funds for a down payment secure home financing.

The Primary Residence Requirement

A fundamental principle of FHA loans is their exclusive use for a borrower’s primary residence. The FHA designed these loans to promote homeownership for individuals and families, not to facilitate investment properties or second homes.

To meet this standard, the borrower must move into the home within 60 days of closing the loan. They must also intend to occupy the property for at least one year. This rule supports the FHA’s mission to promote owner-occupied housing.

Exceptions for Simultaneous FHA Loans

While the general rule limits borrowers to one FHA loan for their primary residence at a time, specific circumstances permit holding two FHA-insured mortgages concurrently. These exceptions acknowledge that life events can necessitate changes in housing needs, allowing for flexibility in specific situations.

• Job relocation: If new employment is not within a reasonable commuting distance (typically 100 miles) of the current FHA-financed property.
• Increasing family size: If the current home becomes inadequate due to a significant increase in dependents. Documentation proving the increased family size and unsuitability of the current home is typically required.
• Co-borrower purchase: A co-borrower on an existing FHA loan may obtain their own FHA loan for a separate primary residence.
• Natural disaster damage: If a property financed with an FHA loan sustains severe damage, making it uninhabitable.
• Vacating jointly owned property: If a borrower is vacating a jointly owned property and the co-borrower will remain.

Re-qualifying for an FHA Loan

Borrowers who have previously held an FHA loan can often obtain a new one. Eligibility depends on how the previous loan concluded and any subsequent financial events. This process focuses on sequential use, not simultaneous loans.

Paid Off Loans

If a borrower sells a home financed with an FHA loan and the loan is paid off, there is no specific waiting period to apply for a new FHA loan. All other eligibility criteria must be met.

Short Sale

If a previous FHA-financed property was subjected to a short sale, a three-year waiting period generally applies from the completion date. This period can sometimes be reduced if extenuating circumstances, such as job loss or medical emergencies, led to the short sale. Lenders will also assess the borrower’s payment history leading up to the short sale.

Foreclosure

In cases of foreclosure on a property with an FHA loan, a three-year waiting period usually applies from the date of the foreclosure sale. This waiting period may be shortened to one year under specific extenuating circumstances beyond the borrower’s control, such as serious illness or the death of a primary wage earner.

Bankruptcy

After a Chapter 7 bankruptcy, a borrower must typically wait two years from the discharge date to be eligible for a new FHA loan. This waiting period can be reduced to one year if extenuating circumstances are demonstrated and good credit is re-established. For Chapter 13 bankruptcy, eligibility is generally possible after 12 months of on-time payments in the repayment plan, with court permission. If Chapter 13 bankruptcy is discharged, a one-year waiting period from the discharge date is typically required, though some lenders may have overlays.

General Requirements for Subsequent FHA Loans

Even when a borrower meets conditions for simultaneous FHA loans or re-qualification, they must satisfy all standard FHA eligibility criteria for the new mortgage. These universal requirements ensure financial stability and property suitability for any FHA-insured loan.

Credit score requirements are a consideration, with the FHA generally requiring a minimum FICO score of 580 for a 3.5% down payment. A lower credit score between 500 and 579 may still permit qualification, but it necessitates a larger down payment of at least 10%.

Debt-to-income (DTI) ratio is another financial metric. FHA guidelines generally cap the total DTI ratio at 43%, comparing monthly debt payments to gross monthly income. Lenders may allow a higher DTI, potentially up to 50% or even 57%, if the borrower possesses strong compensating factors like significant cash reserves or a history of managing similar housing payments.

The property itself must also meet FHA appraisal and property standards, ensuring it is safe, sound, and sanitary. All FHA loans require Mortgage Insurance Premiums (MIP), consisting of an upfront premium of 1.75% of the loan amount and an annual premium that varies based on factors like loan amount and term, typically around 0.55% annually.