Multiple FHA Loans | Is It Possible To Have A Second Home FHA
It is possible to have multiple FHA loans, but there has to be an exception. Dwellings that a borrower occupies in addition to a primary residence are considered a secondary residence and do not include vacation homes. The home is considered a second home when the property is occupied in addition to the borrower’s principal residence.
Exceptions for Two FHA Loans
A principal residence is when the property is occupied for a majority of the calendar year. There are other types of second home financing such as conventional and portfolio (Non-QM) loans that may be a better option. There are exceptions to the FHA policy when limiting the number of FHA loans a borrower can have. The two factors that will determine the eligibility of having two FHA loans are:
- Previous properties length of time being owned by the borrower, and
- Reasoning behind wanting or needing two FHA loans.
Principal Residences and Multiple FHA Loans
The FHA single family programs are owner-occupied principal residences and allow multiple FHA loans under certain circumstances. At least one borrower must occupy the property within 60 days and intend to live in the property for at least one year. The borrower is not eligible for a multiple FHA loans unless they can prove one of the following reasons:
- The FHA-insured mortgage is paid off on the previous residence, or
- The borrower has terminated ownership of that residence.
In all other cases below, the borrower may be eligible for multiple FHA loans if the criteria is met with one of the following policy exemptions:
Relocation May Be a Policy Exception for Two FHA Loans
- Employment related reasons – employer-mandated.
- Commuting distance needs to create hardship on the borrower and no affordable rental housing meeting the borrower’s needs.
An Increase in Family Size May Be a Policy Exception
- Increase in legal dependents, which the current property fails to meet family needs; and
- The outstanding mortgage balance of a current residential appraisal must be equal to or less than 75% loan-to-value.
Leaving a Jointly-Owned Property
- May be eligible if a jointly owned property is vacated by one borrower, with no intent to return, the principal residence; and
- A existing co-borrower will remain at the property
A common example: divorce – one of the vacating ex-spouses leaving the residence to purchase a new home.
Non-Occupying Co-Borrowers
- If a borrower is a non-occupying co-borrower, they may be eligible for another FHA-insured loan if it will be considered their principal residence.
May Approve Secondary Residences Under Certain Circumstances
- Limit to only having one secondary residence at any time.
- Maximum loan amount is 85% loan-to-value.
- Will not be a vacation home or be used primarily for recreational purposes.
- Seasonal employment, employment relocation, or other reasons that are not related to recreational use.
- Demonstrate the lack of affordable rental housing outside the commuting distance of employment.
- Letter of explanation explain the need for a secondary residence and lack of rental housing available by the borrower.
- A letter from a local real estate professional verifying the lack of rental housing available in the area.
FHA Investment Property
Investment properties are not eligible, but there are certain exceptions:
- Need to be a HUD-approved non-profit borrower, Instrumentality of the Government, or state and local government agency.
- Need permission from Jurisdictional Homeownership Center (HOC).
- Eligible under HUD Real Estate Owned (REO) purchasing product.
- Streamline refinance will allow non-owner occupied properties, which is considered an investment property FHA loan.
Three to Four Unit Properties and FHA
The borrower needs to occupy one of the units to meet FHA multi-unit requirements.
- When the property two to four units, rental income from a subject property may be considered effective income.
- For three to four unit properties, the subject property must meet a net-self sufficiency test, which refers to the principal, interest, taxes, and insurance payment divided by the rental income not exceeding 100 percent.
- The rental income is calculated by using the appraiser’s estimate on fair market rent from all units and subtracting 25 percent of the fair market rent or the appraiser’s estimate for vacancies and maintenance.