The FHA generally only allows one FHA loan at a time. If you have an FHA mortgage, you can’t secure another one unless you pay off the original one. In addition, you must prove that you need the mortgage for an owner-occupied property. FHA loans are not meant for second or investment homes. The FHA only guarantees loans for borrowers who need the flexible financing in order to have a place to live.
However, there are exceptions to the rule that allow you to have more than one FHA loan at a time.
Relocating is an Exception for More Than One FHA Loan
The FHA generally allows exceptions for borrowers that must relocate due to their job. If your new position and location is not within a ‘reasonable’ distance for commuting, you may secure a second FHA loan. Just what is reasonable? That’s up for debate. The FHA does not publish a specific distance for this purpose.
One thing the FHA does specify, however, is that you not only must relocate, but must also establish residency outside of the reasonable commuting distance. Again, no specific distance is on record. One important thing to note, however, is the relocation doesn’t have to be employer mandated. It could be a choice you make of your own free will.
A Growing Family is an Exception for More Than One FHA Loan
The only other exception the FHA allows for borrowers having more than one FHA loan is outgrowing your home. Let’s say you used your original FHA loan to buy a two bedroom home. It was the perfect size for your family at the time. But now, you have three children and the 2-bedroom home no longer suits your needs. The FHA allows you to use the program again to buy another home without selling your first home.
In order to qualify, you will need to prove that the home does not meet your needs any longer. Again, this is a case-by-case basis in which the FHA and the lender must approve your situation.
Qualifying for 2 FHA Loans
Now comes the tricky part. You have to qualify for two loans. This means proving that you can afford them. The FHA loan has many parts:
- Real estate taxes
- Homeowner’s insurance
- Mortgage insurance
You will need the total of both mortgage payments to fit into your debt ratio. Don’t forget your other monthly debts as well. If you have a car payment, student loans, or credit cards, those figure into your debt ratio.
Your front-end or housing ratio cannot exceed 31% of your gross monthly income. For example, if you make $75,000 a year or $6,250 a month, your total mortgage payments cannot exceed $1937 per month. Your back-end ratio or total payments cannot exceed 43% or $2687.
The exception to this rule is if your original home has at least 25% equity. If you paid the balance down enough that you owe less than 75% of the principal balance, you may include the rental income you receive for the original home as your income. This can help offset the cost of the two FHA loans.
What if You Can’t Qualify?
Not everyone will qualify to have more than one FHA loan at a time. Luckily, you do have options. The most obvious is to sell your original home and buy another home with FHA financing. If you don’t want to sell your home, you have other options:
- Refinance out of the FHA loan into a conventional or subprime loan
- Use alternate financing for the second home (conventional, USDA, or subprime)
- Rent a home temporarily until you sell your original home
When trying to have more than one FHA loan at a time, you need to use the right lender. Talk with several lenders about your situation. The FHA sets the minimum rules, but the lender can add more rules on top of it. In other words, some lenders might not allow you to have two FHA loans at once while others won’t mind as long as you qualify for them.
Shopping around also allows you to find the best rate and fees for your FHA loan. Since you’ll have two mortgages, you’ll want to find the best deal for your new home!