FHA loans are for owner-occupied properties. Since it’s impossible to live in two places at once, you probably assume you can’t have more than one FHA mortgage at a time. Technically, you are right, but there are some exceptions to the rule.
HUD grants exceptions to borrowers that are in one of the following situations:
- You and your family have outgrown your existing home
- Your job relocated you and it’s not within a reasonable distance to commute
Just what they use to justify these situations is sort of a subjective area. There’s no specific distance you must be relocated in order to qualify and there isn’t a specific amount of room you must need in order to outgrow your home.
HUD states if you meet one of those situations though, they may grant you the exception to carry two FHA loans at once. You may rent out your current home and then use the FHA loan to buy another home as your owner-occupied residence.
There’s a catch, though, you have to qualify for two loans.
Qualifying for Two Loans
FHA loans have flexible guidelines. You can have a 580 credit score and as much as a 43% total debt ratio. That’s a lot more forgiving than conventional loans. But when you are talking about carrying two mortgages at one time, that’s a heavy load to carry.
You have to be able to prove that you can carry both loans and not go over the maximum debt ratio. In other words, you need to prove to the lender that you are not a high risk. In other words, you need to prove that you have stable income, decent credit, and the ability to manage the rental property that you now own.
The problem that many people run into is using the rental income. While you might have an executed lease to show lenders that you are receiving or will receive rental income, it’s too new for the lender to use it. This doesn’t mean you can’t use rental income to help you qualify for the loan. But, you may not be able to use 100% of the income you make. Lenders often use the fair market rental rate provided to them by an appraiser. They then take 75% of that amount to use for qualifying purposes.
What if You Can’t Have Two FHA Loans?
If you don’t qualify for two FHA loans, you don’t’ have to give up your plans. There are ways around it including:
Refinance your current home’s loan into a conventional loan if you qualify. If you have equity in the home, improved your credit, and kept your debt ratio low, this may be an option.
Use conventional financing to buy the new home. If you don’t want to refinance your FHA loan, you may qualify to buy the new home with conventional financing.
Rent the new home until you can qualify for financing for this home. You may even find rent-to-own options or find rent that is less expensive than your mortgage payment would be.
The bottom line is that in some cases you can have two FHA loans. Is it recommended? That depends on your circumstances. Before you take on more than one loan, give it careful thought. Make sure you can comfortably afford both payments, even if you have rental income. You can’t rely on the rental income 100% because as we know, things happen. Always plan for the worst-case scenario to keep yourself prepared.