“Can I get an FHA loan for a second home?” is a common question among homeowners wanting to purchase a secondary property as their primary living space. In this guide, you’ll learn all about getting an FHA loan for a second home, including the requirements and conditions.
Purchasing a vacation home or second property is an exciting milestone. But financing it can be tricky, especially if you still have a mortgage on your primary residence Many wonder if they can qualify for an FHA loan on a second home In this comprehensive guide, we’ll break down if and how you can use FHA financing to buy a secondary residence.
FHA Occupancy Rules For Borrowers
First, it’s key to understand the FHA’s strict occupancy requirements for borrowers:
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FHA loans are only given for a primary residence that the borrower will occupy within 60 days of closing,
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Investment properties or vacation homes do not qualify for FHA loans.
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FHA mortgages can’t be used for timeshares transient housing or short-term rentals.
These policies aim to prevent abuse of FHA financing by real estate investors. So purchasing a second home with FHA will be challenging. But there are some scenarios where exceptions may be possible.
When Can An FHA Loan Be Used For A Second Property?
While rare, the FHA handbook does outline certain situations where borrowers can qualify for a second FHA mortgage when they still hold one on their primary home:
Relocation for Employment
If you’re moving over 100 miles away for a new job, you may be able to take out an FHA loan on the new residence without needing to sell the original property with the FHA mortgage. Distance is key.
Increase in Family Size
If your family has grown to the point your current FHA-financed home no longer meets your needs, you may be approved for a second FHA purchase. You’ll need to prove the requirement for more space.
Divorce or Separation
In the event of a divorce or legal separation, remaining co-borrowers may each be able to obtain new FHA mortgages on different properties. Specific conditions apply.
Conversion of Primary Residence to Rental
If you wish to move into a new primary residence purchased with FHA financing, while converting your existing FHA property into a rental, this may be allowed in certain cases.
Co-Borrower Obtaining Solo Mortgage
If you and a spouse or partner purchased your current home with a joint FHA loan, one co-borrower may potentially be approved for their own individual FHA mortgage when vacating the shared property.
As you can see, the opportunities are limited. But some borrowers may fit the criteria.
Applying for an FHA Second Home Mortgage
If you meet one of the exception requirements, here is the general process to apply for an FHA loan on a second home:
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Find a lender that offers FHA mortgages. Credit unions, banks and online lenders are options.
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Submit your loan application and documentation that proves your eligibility for an exception. This may include employment transfers, divorce decrees, family size evidence, etc.
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Allow the lender to check your credit and review your income, assets, debts and credit score to assess your finances.
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Provide any additional paperwork the lender requests to verify your situation warrants an exception.
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Wait for a decision on your loan eligibility and terms based on the lender’s underwriting review.
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Proceed through the closing process if approved.
It’s critical to be completely transparent about your current FHA mortgage and reason needing a second home loan. Lenders will scrutinize applications carefully.
Tips for Getting Approved
Because second FHA loan applications face tighter scrutiny, here are tips to boost your odds:
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Have substantial equity in your current home – this shows you’re financially stable.
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Pick a lender that has experience with second FHA mortgages.
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Ensure your credit and debt ratios are strong.
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Provide ample documentation to justify the exception.
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Be patient as reviews will be rigorous.
While approvals are never guaranteed, coming as prepared as possible will help your case.
Alternatives to FHA for Second Homes
If you don’t meet FHA second mortgage exceptions, there are alternative financing options including:
Conventional Loans – Have easier second home rules than FHA. May require higher down payments.
Portfolio Loans – Offered by community banks and credit unions with more flexible criteria.
All Cash Purchase – Avoid financing challenges by buying second property in cash if possible.
HELOC – Use home equity line of credit from primary residence for down payment funds.
Running the numbers on these other loan types for your second home is prudent if FHA doesn’t appear feasible.
The Bottom Line
While the FHA takes a very restrictive stance on financing second homes, some borrowers may prove eligibility for exceptions. If your situation truly aligns with FHA second mortgage allowances and you submit a strong application, an approval is possible in some cases. But you’ll need to document your circumstances thoroughly and be prepared for tight scrutiny from lenders.
If FHA seems out of reach, conventional programs or other options like HELOCs and cash purchases are alternatives. Talk to a knowledgeable loan officer to map out the optimal financing plan for your second home.
Other Resources:
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How HELOCs Can Help You Buy a Second Home
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5 Mistakes to Avoid When Buying a Second Home
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Using Retirement Funds to Purchase a Second Home
FHA Loan Conditions for a Second Home
Can you get an FHA loan for a second home? Not everyone is eligible for this program because you must have a good reason for no longer staying in the home you bought with your first FHA loan. You should be able to make down payments and have a solid credit score to move forward. The FHA allows you to buy a second home for main living purposes but will not help you fund a second home to rent for money or as a vacation home.
Here are some ways you’d qualify for an FHA loan for a second property and how you’d be an exception to the guidelines.
You needed to relocate for a job change, such as being moved to another branch or getting a promotion. If you can’t reasonably commute to your employer, you could be eligible for an FHA loan for a second home. You don’t necessarily need to sell the first home to live in the second one and don’t need to move back into it as your primary home.
The rule is that there must be at least a 100-mile distance between the two properties. There are some extreme cases where you could still qualify when the homes are closer. You might also be able to rent out the first property while living in the second.
FHA Loan Eligibility for a Second Home
You may expect a penalty for being a second-time homebuyer looking for an FHA loan, but don’t worry. The FHA considers second-time homebuyers even if they already used an FHA to pay for their first property. These loans are for borrowers who will use the acquired property as their primary residence, not to make money on rentals, as an investment, or for other related reasons.