How Many FHA Loans Can You Have: Is It Possible To Have More Than One?
The Federal Housing Administration or FHA loan 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 clients with FHA loans may for one reason or another need a second loan before the first is paid off or sold. This often leaves people wondering: How many FHA loans can you have? And is it possible to apply for more than one home loan?
Generally, the FHA states that you're only allowed one. 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!
What’s The Difference Between An FHA Loan And A Conventional Loan?
Though an FHA mortgage is tailored to enable first-time borrowers to qualify for loans, anyone can apply for them. FHA loans have slightly higher down payments and are stricter with property standards, but are open to those with lower credit scores. Conventional loans on the other hand usually ask for a smaller down payment and are more lenient with property standards, but they require higher credit scores.
Generally speaking, if you have a good credit history and can pass the requirements, conventional loans may come out as the cheaper 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 if you already have the other. If you’ve found yourself needing to take out a second FHA loan but 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?
By typical standards, you can only take out one FHA mortgage 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 listed below, the HUD may allow you to take out more than one FHA-insured loan.
One reasonable cause for exemption is that you have been reassigned elsewhere or have received a new job opportunity that makes for an unreasonable commute from home to work. Each lender may have their own interpretation of this, but it’s pretty safe to say anything over an hour may be deemed unreasonable.
Another measure is that your new home is more than 100 miles away from your current FHA home. Again, lenders will have to assess your individual situation to determine that it’s reasonable for you to need to acquire another loan for a second FHA home.
2. Upgrading due to growing family
A significant increase in family size may be another reason for lenders to allow you to take out a second FHA loan for another house. You will need proof that your current primary residence is no longer suitable to meet the needs of your family.
FHA lenders often take a look at how many bedrooms your current FHA home has versus how many family members you have currently living with you.
Another instance wherein lenders may allow you to take out a second FHA loan is if the first home was purchased with a co-borrower and you now would like to take out a mortgage on your own. Previous co-borrowers may include spouses who have since been divorced, as well as family or other partner situations.
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 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. If you are below 25%, you’ll need to pay a principal balance of 75% of your home’s value.
If you’re 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 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 reflect on 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 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 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 property.
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.
It may be possible for you to get more than one FHA loan, but every borrower's situation is different. Home loans are big financial decisions and knowing what lenders require of you can be tricky. Extensive research and planning on your part beforehand will significantly increase your chances of qualifying for a second FHA loan.
If you’re feeling a little overwhelmed, don’t worry! Reach out to us at Wesley Mortgage, LLC, and let us guide you through your mortgage. We offer professional services to assist you with each step.