What Are the Exceptions to Having 2 FHA Loans?

The Federal Housing Administration (FHA) insures mortgage loans made by approved lenders. FHA loans allow buyers to purchase a home with a low down payment – as little as 3.5% of the purchase price. These government-backed loans make homeownership more accessible.

However FHA guidelines restrict borrowers to one FHA loan at a time in most cases. The FHA intends for borrowers to use the loan to become homeowners by purchasing their primary residence. The agency prefers borrowers do not use FHA financing to buy multiple investment properties.

But certain circumstances may allow you to qualify for two FHA loans. Let’s explore the exceptions to the one FHA loan rule.

You Must Live in the Home

Before we dive into the exceptions remember that you must move into the home and occupy it as your primary residence when using FHA financing. If you misrepresent your intentions to live in the property you are committing mortgage fraud.

It is illegal to use an FHA loan to purchase a vacation home or investment property that you do not intend to occupy. However, exceptions to FHA’s one loan at a time rule do exist.

Relocating for Employment

Relocating for a new job is one of the most common reasons a borrower seeks to take out a second FHA loan FHA guidelines allow borrowers to finance two properties simultaneously when

• You have an existing FHA mortgage on your current primary residence.
• You relocate to a new area for employment.
• Your current home with the FHA loan is at least 100 miles from the new home you wish to purchase with FHA financing.

For instance, if you accepted a job in a different state and needed to relocate on short notice, FHA would allow you to purchase the new home with an FHA loan before selling your current property. This exception prevents eligible borrowers from missing out on job opportunities.

To qualify for the relocation exception, provide your lender documentation proving:

• You have an accepted job offer in the new location.
• The distance between the two properties is over 100 miles.
• You plan to sell the original home as soon as possible.

Divorce Situations

FHA allows you to take out a second loan in your name if you are going through a divorce and intend to vacate the current FHA-financed home.

For example, if you and your spouse jointly obtained an FHA loan but now you are divorcing, FHA permits you to purchase another home in your name alone before the divorce finalizes. Requirements include:

• Your name must be on the current FHA mortgage note.
• You must provide evidence you are legally separated or filing for divorce.
• Your spouse will assume or retain sole ownership of the current FHA property per divorce decree.
• You must move out and purchase another primary residence in your name only.

This exception prevents displacements during marital separations. Work with your lender to provide documentation needed to prove you qualify for the exception.

Family Size Increase

FHA allows borrowers to take out a second loan if their family has grown larger and their current FHA-financed home no longer suits the family’s needs. To qualify for this exception, you must:

• Occupy the current home as your primary residence.
• Provide birth certificates, adoption papers, or other proof documenting the increase in legal dependents residing in your current FHA property.
• Prove the size of your current home is inadequate for your larger household.

In most cases, lenders require you have at least 25% equity in the current home before they approve the second FHA loan.

Cosigned FHA Loans

FHA permits borrowers to take out a second loan when:

• You cosigned on an FHA loan but do not hold title to that home.
• You want to purchase a new primary residence in your name only.

For instance, you cosigned on an FHA loan with your child so they could buy their first home. Now you want to purchase your own primary residence with an FHA mortgage. FHA allows this scenario since your name is on the current mortgage but you do not own that home.

Former Co-Borrowers

If you previously co-signed an FHA loan with a spouse or partner who will remain in that home, FHA allows you to take out a new loan in your name only.

You must prove:

• Your name is on the current FHA mortgage.
• You will move into the new property and no longer occupy the original FHA-financed residence.
• The partner staying behind will assume sole monthly mortgage payments.

This exception aims to prevent displacements when co-borrowers split.

The 100 Mile Rule

Several of the exceptions above mention a requirement that your new primary residence financed with FHA must be at least 100 miles away from the current FHA-financed property.

This distance requirement reduces the risk a borrower misuses the FHA loan to buy multiple investment properties for rental income. The FHA sets this 100 mile limit to discourage borrowers from becoming landlords and taking advantage of the FHA loan program.

Alternatives to Multiple FHA Loans

If you do not qualify for two simultaneous FHA loans, other options include:

• Take out a conventional, USDA, or VA loan on the second home. These programs may have more flexible rules than FHA.

• Wait to apply for another FHA loan until you sell the original property or pay off the existing FHA mortgage.

• Seek alternative financing like a personal loan to purchase the second property until you can sell the initial home or refinance into a conventional loan.

• Look into renting temporarily if you need to relocate quickly for a job and cannot yet sell your house with the pending FHA loan.

Final Thoughts

While FHA allows exceptions in certain circumstances, the general rule is you can only have one FHA loan at a time. If you currently have an FHA mortgage, verify whether you qualify for one of the exceptions before seeking another FHA loan.

The most common exceptions involve relocations, divorces necessitating two residences, increased family size, and cosigned loans. Also remember the property you finance with FHA must always serve as your primary residence.

Review FHA requirements and ask your lender to confirm you meet the criteria before obtaining a second FHA mortgage. If not, discuss options like conventional financing as alternatives so you can still achieve your homeownership goals.