Can You Have Two FHA Loans at the Same Time?

The Federal Housing Administration’s mortgage insurance program aims to help make homeownership accessible and affordable FHA loans require a low down payment and have flexible credit requirements compared to conventional loans However, you generally can’t have two FHA loans simultaneously. Let’s look at the FHA rules on multiple loans and your options if you need another mortgage.

What Are FHA Loans?

FHA loans are backed by the Federal Housing Administration, part of the U.S. Department of Housing and Urban Development (HUD). These government-insured mortgages help borrowers with low down payments, lower credit scores or higher debt qualify for competitive interest rates.

Key features of FHA loans include

• Low down payments – Only 3.5% is required for buyers with a credit score of 580 or higher.

• Lenient credit guidelines – You may qualify with a credit score as low as 500 with a minimum 10% down payment.

• Low mortgage insurance – FHA loans require upfront and annual mortgage insurance premiums, but rates are lower than with conventional loans.

To prevent abuse of the program, FHA rules limit borrowers to one FHA loan at a time in most cases.

Why Are Multiple FHA Loans Restricted?

The FHA mortgage program aims to promote homeownership by easing barriers such as affordability. But the loans are intended for owner-occupants purchasing a primary residence, not real estate investors.

Allowing borrowers to have unlimited FHA loans could lead to abuse, with investors snapping up properties using low down payments then renting them out.

That’s why generally you can only have one FHA loan open at a time. The exceptions are narrow to prevent misuse while accommodating some legitimate needs for multiple FHA mortgages.

When Can You Get an Additional FHA Loan?

You may qualify for a second FHA loan before paying off your current one if you’re in one of these special situations:

• Relocating for a new job – If your new job requires moving far away from your current home, you can get another FHA loan for your new primary residence.

• Purchasing in a different location – Your second home must be at least 100 miles from the first to qualify for two simultaneous FHA loans.

• Divorce – If awarded the house in a divorce, your ex could get approved for their own FHA loan for a new primary residence.

• Increased family size – You may be able to show that your current FHA home no longer fits your household’s needs due to the addition of children or other residents.

• Cosigning – You can cosign on an FHA loan for a family member without having to be a co-borrower. This won’t violate the one-loan limit.

• Purchasing a HUD REO home – FHA loans can be used to buy FHA foreclosure properties called HUD Homes without needing to be owner-occupied.

Each situation has specific requirements, so check with an FHA lender. You’ll also need to prove you can afford two mortgage payments.

How to Qualify for Multiple FHA Loans

To get approved for a second FHA loan, you’ll have to meet these general eligibility standards:

• Credit score – At least 580 for 3.5% down or 500 with 10% down.

• Down payment – 3.5% or 10% of the purchase price, depending on your credit score.

• Debt-to-income ratio – Total monthly debt payments, including both mortgages, should be below 43%.

• Occupancy and location – The second FHA property must meet applicable occupancy and distance rules.

• Equity – May need to have at least 25% equity in the first FHA home.

• Reserves – Expect to show savings equal to a few months of mortgage payments.

You’ll also need to provide documents supporting the reason you require another FHA loan.

Alternatives to Multiple FHA Loans

If you don’t qualify for two FHA mortgages at the same time, you may have other options:

• Fannie Mae HomeReady® or Freddie Mac Home Possible® – These conventional loans allow as low as 3% down for certain low-income borrowers.

• VA loans – No down payment is required and credit scores as low as 580 may be accepted. Must be an eligible military borrower.

• USDA loans – 100% financing available in designated rural areas for moderate-income buyers.

• FHA streamline refinance – Current FHA loan can be refinanced without an appraisal, allowing you to tap equity for a down payment on a conventional mortgage.

• Cash-out refinance – Refinancing into a conventional loan and taking cash out for a down payment on a second home may be possible depending on your equity position.

• Sell first home – You can sell your current property, repay the FHA loan, and apply for a new FHA mortgage.

The Takeaway

Because they require lower down payments and allow lower credit scores, FHA guidelines restrict borrowers to just one FHA loan at a time in most cases. This prevents abuse by real estate investors. Exceptions may be made if you’re purchasing a new primary residence far from your current FHA home due to relocation, divorce or family size change. Cosigning or buying a HUD home also allows multiple FHA loans. If you don’t qualify for two FHA mortgages, alternative programs may help you buy or refinance.