The Federal Housing Administration, or FHA, is a government-backed mortgage that typically caters to many first-time homebuyers or lower-income earners that might not otherwise qualify for traditional loans. 

‍

There are situations where borrowers with FHA-insured loans may, for one reason or another - such as a divorce, job relocation, or home purchase - need a second loan before the first is paid off or the home is sold. This often leaves people wondering: How many FHA loans can you have? Is it possible to apply for a second home loan? Moreover, how does the state handle mortgage loans for investment properties?

‍

In general, the FHA states that a borrower is only allowed one FHA-insured mortgage loan. However, there are special conditions wherein you might be considered for another. In this quick guide, we’ll be covering exactly what these conditions are, how you can qualify, and what your best options are! We'll also provide information on content such as DTI (Debt to Income) ratio and mortgage insurance, which are essential for any homebuyer to understand.

What’s The Difference Between An FHA Loan And A Conventional Loan? 

Though an FHA-insured mortgage loan is tailored to enable first-time borrowers to qualify for loans, anyone can apply for them. FHA-insured loans have down payment requirements ranging from 3.5% to 10%, depending on the borrower’s credit score, and may be stricter with property standards. Conventional loans, on the other hand, may require a smaller down payment depending on the loan program and are more lenient with property standards. However, they may require higher credit scores.

‍

Generally speaking, if you have a good credit history and can pass the requirements, conventional loans may come out as a better option. However, if you are young and haven't built up a good credit score yet or have had issues with credit in the past, FHA loans may be your answer.

‍

It’s possible for you to apply for one type of loan if you already have the other. If you’ve found yourself needing to take out a second FHA loan but you do not qualify for the conditions we’ll discuss below, you may want to consider trying for a conventional mortgage instead.

How Can You Get Multiple FHA Loans At The Same Time?

You can often only take out one FHA-insured mortgage loan at a time. However, we’ve mentioned that FHA loan guidelines and the Department of Housing and Urban Development (HUD) list certain conditions that allow for exceptions to this rule. Under the right circumstances, such as those listed below, FHA may allow you to take out more than one FHA-insured loan. A number of these exceptions include cases where a family member is involved or the borrower's rights have changed.

FHA Conditions:

‍

1. Relocation

Borrowers may be eligible to obtain another FHA-insured mortgage without being required to sell an existing property covered by an FHA-insured mortgage if the borrower is:

‍

• Relocating or has relocated for an employment-related reason; and
• Establishing or has established a new principal residence in an area more than 100 miles from the borrower’s current principal residence.

‍

It is also important to note that if the borrower moves back to the original area, the borrower is not required to live in the original house and may obtain a new FHA-insured mortgage on a new principal residence, provided the relocation meets the two requirements above.

2. Increase in Family Size

A borrower may be eligible for another house with an FHA-insured mortgage if the borrower provides satisfactory evidence that:

‍

• The borrower has had an increase in legal dependents and the property now fails to meet family needs; and
• The loan-to-value ratio (LTV) on the current principal residence is equal to or less than 75% or is paid down to that amount, based on the outstanding mortgage balance and a current residential appraisal. 

3. Vacating a Jointly-owned Property

A Borrower may be eligible for another FHA-insured mortgage if the borrower is vacating (with no intent to return) the principal residence which will remain occupied by an existing co-borrower. Previous co-borrowers may include spouses who have since been divorced, as well as family or other partner situations.

4. Non-occupying Co-borrower

A non-occupying co-borrower on an existing FHA-insured mortgage may qualify for another FHA-insured mortgage on a new property to be their own principal residence.

‍

A borrower with an existing FHA-insured mortgage on their own principal residence may qualify as a non-occupying co-borrower on other FHA-insured mortgages.

FHA Requirements:

Verdicts differ on a case-to-case basis, so FHA loan lenders will have to review your application to make sure you can repay the loan. This means that no matter if it’s your first or second FHA-insured mortgage, you must be able to meet the necessary minimum mortgage requirements listed by the FHA.

‍

Rental income can be included to offset your FHA loan payments if you have at least 25% equity (LTV of at least 75%). If you are below 25% equity, you’ll need to pay down the principal balance to 75% of your home’s value.

‍

If you are looking to use rental income as an offset, you’ll have to provide:

‍

• Tax returns to show proof of two-year rental income history. If you don’t have a two-year rental income history, you can instead verify the date your FHA-insured home was purchased or prove your current home has at least 25% equity.
• Rental income analysis appraisal valuation from an appraiser. This is to verify the market rents in your area.
• A copy of the lease and proof of security deposit and first month's rent.

Tips For Applying For A Second FHA Loan

• Check your credit history to make sure you know where you are financially.
• Pay bills and debts on time. Even small infractions will build up and impact your credit score, making it harder for you to make bigger financial decisions like becoming a borrower in the future.
• As a borrower, before taking out one or multiple loans, remember your debt-to-income ratio must be able to support both your mortgage payments. This will also be checked by lenders and is a huge factor in qualifying for a loan.
• Be organized about your paperwork. File documents properly in both soft and hard copies in case anything happens to either one. 
• Don’t give up if you’re rejected at first. Ask why you were rejected and correct what’s needed, if possible, before seeing the next lender.
• Do your research! There’s a wide range of lenders besides the FHA, all with varying requirements. You can check out rate comparison sites to see which lenders best suit your situation as a borrower.

Alternatives To An FHA Loan

There are a lot of hurdles to pass when obtaining a mortgage, especially multiple ones. If you can’t meet the conditions for a second FHA-insured mortgage, don’t worry. There are other options you can consider that may better suit your situation:

‍

• Sell your current home or refinance your current home to a conventional home loan.
• Buy your new home with a conventional home loan.
• Get a cosigner for your mortgage. If your credit score is low or damaged, a cosigner can help make your application seem more legitimate or appealing to lenders. Be mindful, however, that cosigners must agree to take on as much responsibility as you with regards to the obligation to repay the mortgage. 
• Buy on Land Contract. This is a contract wherein sellers maintain legal titles to the property until full payment is made. Down payment may be required, but buyers can pay sellers in installments. Then after the full payment is completed, the legal titles are turned over to the buyer.
• Rent or Lease your current home until you sell.
• Try other options for home loans. If you are in a rural area you may want to consider the United States Department of Agriculture (USDA). The U.S. Department of Veterans Affairs (VA) also provides assistance with loans for military veterans. Neither loan program requires a down payment and both set lower limits for credit scores.‍

‍

Conclusion

It may be possible for you to get more than one FHA-insured loan, but every borrower situation is different. Home loans are big financial decisions and knowing what lenders may require from you can be tricky. Extensive research and planning on your part in advance will significantly increase your chances of qualifying for a second FHA-insured loan.

‍

If you’re feeling a little overwhelmed, don’t worry! Reach out to us at Wesley Mortgage, and let us guide you through your mortgage loan options. We offer professional services to assist you with each step.