Yes, you can get an FHA loan for a second home if your purchase is because of an âundue hardship,â such as getting a job thatâs over 100 miles from your current house or outgrowing your current house.
Purchasing a vacation home or second property can be an excellent investment and provide lasting memories with family and friends. However, financing a second home is more complicated than getting a mortgage for your primary residence. One key difference is that popular government-backed loans like FHA are not available for second homes.
In this comprehensive guide, we’ll cover:
- FHA occupancy rules and requirements
- When exceptions may allow a second FHA loan
- Alternative loan options for second homes
- Tips for qualifying for a second home mortgage
Whether you’re considering a lake house, mountain cabin, or condo at the beach, understand your financing options before making an offer on your next vacation getaway.
FHA Loans Are for Primary Residences
The Federal Housing Administration (FHA) insures mortgages made by approved lenders to help more buyers afford homeownership. But FHA loans come with occupancy requirements.
All FHA borrowers must intend to occupy the home as their primary residence within 60 days of closing. Furthermore they must plan to live in the property for at least one year. FHA loans cannot be used to purchase investment properties or vacation homes.
These occupancy rules apply to both FHA purchase mortgages and FHA refinances. So you cannot get an FHA cash-out refinance loan for a second home either.
The reason is that owner-occupiers are seen as less risky than investors or vacation home buyers. The FHA wants to minimize risk since they are insuring the loan against default.
When Can Exceptions Allow a Second FHA Loan?
In some circumstances, the FHA makes exceptions to its one-loan-per-borrower policy. This can allow a borrower with an existing FHA mortgage to obtain a second FHA loan on another property.
According to HUD guidelines, the exceptions are limited but may include:
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Relocation for a job: If you’re moving over 100 miles away for employment, you may qualify for a second FHA loan on a new primary residence without having to sell the first home.
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Increase in family size: If your family has grown significantly and your current FHA home no longer meets your needs, the FHA may approve a second loan.
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Vacating a jointly owned property: If you jointly own an FHA-insured property with an ex-spouse or partner and are vacating, you may be able to get another FHA loan on your own.
In all cases, the lender must submit your unique situation for manual underwriting and approval by the FHA. So exceptions are never guaranteed.
Loan Options for Second Homes
Since FHA loans are out, what financing options work for a second home purchase? Here are a few possibilities:
Conventional Loans
Conventional mortgages backed by Fannie Mae and Freddie Mac are a popular option for second homes. You’ll need a higher down payment and credit scores than FHA loans require. But interest rates may be lower.
Portfolio Loans
Banks and credit unions offer portfolio loans for vacation properties that they hold on their own books rather than selling to the secondary market. These loans can be customized for your financial situation.
Home Equity Loan
If you have sufficient home equity, a cash-out refinance or home equity loan against your current property may provide funds to buy a second home with cash.
USDA Loans
In limited cases, USDA home loans can be used to purchase a second home. But the property must be in an eligible rural area, and additional requirements apply.
Personal Loans
An unsecured personal loan is possible if you have strong credit and income. But you’ll get a higher rate than a mortgage and need to qualify for the full purchase amount.
Tips for Qualifying for a Second Home Loan
Second home loans come with more stringent requirements than primary residence mortgages. Here are tips to boost your chances:
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Make a sizable down payment – Plan for at least 15-20% down to get the best rates
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Have excellent credit – Most lenders want at least a 720 FICO score for vacation home loans
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Lower your DTI – Keep total debt obligations under 36% of gross income
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Buy below your limit – Opt for a lower price point home to make payments comfortable
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Use a co-signer – Adding a co-signer with better credit can help you qualify
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Know the rules – Learn which loans allow second homes and their unique terms before applying
The right lender for your financial profile can make obtaining a second home loan much easier. Be sure to get pre-qualified before you fall in love with a vacation property.
FAQs About FHA Loans and Second Homes
Can you get an FHA loan on a second home?
No, FHA loans cannot be used to purchase second homes or vacation properties. FHA mortgages require owner-occupancy as a primary residence.
What loans can you get for a second home?
Conventional mortgages, portfolio loans, home equity loans, and personal loans are possibilities for a second home. FHA, VA, and USDA loans only permit second properties in limited cases.
Can you get two FHA loans?
In most cases, borrowers are limited to just one FHA loan at a time. But exceptions for relocation, family size increase, or vacating shared property may allow some borrowers to qualify for a second FHA mortgage.
How soon can you buy a second home after first home?
There is no minimum time you must wait after buying an initial home with an FHA loan before purchasing a second vacation property through conventional financing. However, you’ll need to qualify based on your income, debts, and credit.
Does a vacation home have to be 50 miles from primary residence?
No, there is no federal rule requiring a certain distance between a primary residence and second home. However, some lenders may impose their own geographic requirements.
What is considered a second home versus investment property?
A second home is for personal recreational use by the owners while an investment property is held primarily to generate rental income and profit. Lenders will verify how you intend to use the property.
Can I rent out my second home?
Lenders may allow second homeowners to rent out the property on occasion. However, there are typically limits such as no more than two weeks per year or only during peak tourism season based on the area. Excessive rental use can mean reclassification as an investment property.
The Bottom Line
FHA financing isn’t an option for buying a vacation home or second property. While exceptions exist, they are limited and not guaranteed. Conventional loans, portfolio lending, and home equity provide alternative routes to finance second homes for those who qualify. Understand all your mortgage options before searching for your perfect second property.
What do you need for an FHA second home?
ð Proof that you meet policy exemptions. The FHA wants to be absolutely sure that youâre not buying a second property for investment or recreational purposes. They will ask you to provide documentation to support your reasons for your second home.
ð° A minimum 15% down payment. You can borrow up to 85% of the homeâs appraised value. That means, youâll have to pay at least 15% of the purchase price on your secondary home.
ð¸ Debt-to-income ratio of at least 43%. If youâre still making mortgage payments on your primary residence, youâll include those in your DTI. This is in addition to the mortgage payments you plan to make on your secondary home.
ð¦ A minimum credit score of 580. Additionally, you canât have any recent bankruptcies or foreclosures.
The FHA considers a “primary residence” (or “principal residence”) to be the home you live in for the majority of the year, while a “secondary residence” is a house that you plan to live in for a portion of the year. Neither can be an investment or vacation property.
Typically, FHA loans are to fund a primary residence purchase. So if you meet one of the criteria for a second loan, the expectation is that this new home will become your primary residence.
(Use our FHA loan calculator here.)
How you can get an FHA loan for a second home
You can get a second loan from the Federal Housing Administration (FHA) if youre:
| ð Relocating for a new job thatâs more than 100 miles from your primary residence |
| ðª Adding legal dependents and need a bigger home |
| ð Leaving a home you owned with others and now looking for your own home |
| ð A coborrower on someone elses loan but now looking for your own home |
If you need to work on-site at least 100 miles from your home, the FHA may approve a second loan application.
It doesnât have to be a job that you work year-round. It can be seasonal employment or a property near one of your primary clients. As long as you can show that work motivates your purchase, the FHA will likely approve your loan application.
In some instances, the FHA may allow you to rent out your primary or secondary home when youâre not using them. Just be careful â if theres suspicion youâre trying to buy a rental property, your application will likely get denied.
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ð Does your new job have to be more than 100 miles away? In most cases, yes. The FHA may allow exceptions for commutes that pass through heavy-traffic areas. |