Can I Have 2 FHA Loans in Different States?

Obtaining an FHA loan can be an attractive option for homebuyers, especially first-time buyers, due to the low down payment requirements. But can you have more than one FHA loan at the same time if the properties are in different states?

The short answer is generally no. The Federal Housing Administration’s rules state that you can only have one FHA loan at a time even if the properties are located in different states. There are some limited exceptions, but they are quite restrictive.

FHA Loan Basics

FHA loans are backed by the Federal Housing Administration, which is part of the US. Department of Housing and Urban Development (HUD). These loans require a low down payment of just 35% if your credit score is 580 or higher.

The trade-off is that you’ll have to pay mortgage insurance premiums for the life of the loan. But the low down payment makes FHA financing attractive for first-time homebuyers and others without a lot of cash saved up.

However, FHA loans come with residency requirements. They are intended for owner-occupied primary residences only. You cannot use FHA financing to buy a vacation home or investment property.

And in most cases, you are limited to just one FHA loan per household.

Why the One FHA Loan Rule Exists

The FHA allows this type of beneficial financing to help low and moderate income families achieve homeownership. But the agency wants to avoid the loans being abused or used for purposes they weren’t intended for.

That’s why the rules state that you can only have one FHA loan at a time. This helps prevent investors from trying to buy multiple rental properties by taking advantage of the low down payment.

The FHA’s mission is to provide affordable financing options to owner-occupied homebuyers, not landlords and professional real estate investors.

Having more than one FHA loan at the same time substantially increases financial risk as well. Even if the properties are in different states, the borrower still has to be able to afford both mortgage payments plus other housing expenses.

The Limited Exceptions

There are a handful of exceptions where you can legally hold two FHA loans at the same time. But the situations are quite restrictive and uncommon.

Here are the main scenarios where a second FHA loan may be allowed:

• Relocation for a new job: If your new job requires you to move to a different area not reasonably commutable from your current home, you may qualify for a second FHA loan before the first one is paid off. However, this can only be a temporary exception. You’ll have to sell the first home within 12 months.

• Divorce situation: If you and a spouse are awarded different FHA-insured homes as part of a divorce settlement, you may both be able to retain the financing for a time. But one party will likely need to refinance out of the FHA loan within a year.

• Increased family size: If your family has expanded significantly and your current FHA home no longer fits your needs, you may be able to qualify for a second loan. However, you’ll need to have at least 25% equity in the current property, document the increased family size, and prove the current home is now too small.

• Co-signing for a family member: You may be allowed to have two FHA loans at once if you co-sign for a child or other relative. But remember, you’ll be responsible for both mortgage payments if they can’t pay.

As you can see, the exceptions essentially boil down to major life events like a job relocation, divorce, or family expansion. And even then, the period where you can have two FHA loans is intended to be temporary.

How to Qualify for Two FHA Loans

If you believe your situation truly warrants an exception to qualify for two FHA loans, be prepared to document your circumstances. Lenders will scrutinize your ability to afford both payments.

Here are some key requirements to qualify:

• Credit score: The minimum is usually 580 for 3.5% down or 500 for 10% down. All borrowers must meet this.

• Down payment: At least 3.5% down if scores are 580+, or 10% if 500-579. Gift funds generally cannot be used.

• Debt-to-income ratio: Both mortgage payments must keep your DTI below 43%. Total monthly debts divided by gross monthly income.

• Reserves: Most lenders require enough savings to cover at least 2 mortgage payments. Reserves must be your own funds, not gift money.

• Rental income: If renting out the other property already, must document sufficient rental income to qualify.

• Equity: Need at least 25% equity in current property if no rental income history yet.

As you can see, the bar is quite high. In addition, you’ll pay mortgage insurance premiums on both loans. And qualifying for a second home loan may be difficult depending on your income and debts.

Alternatives to Look Into

Given the hurdles involved with getting approved for two simultaneous FHA loans, you may want to consider alternative options in your home financing strategy.

Here are a few possibilities to explore:

• Conventional 97: This program allows down payments as low as 3% like an FHA loan, but is a conventional mortgage backed by Fannie Mae or Freddie Mac.

• Piggyback loan: You may be able to finance as little as 5% down on the first mortgage and make up the difference with a small simultaneous second mortgage for the remainder of the down payment.

• Sell first home: If you can sell your current property first and pay off the FHA loan, you’ll have an easier time getting approved for a new mortgage.

• Cash-out refinance: You may be able to tap equity on your current home through a cash-out refinance, then use those funds toward the next home.

• Alternative property types: Conventional loans allow non-owner-occupied properties, so you may have more flexibility looking at a vacation home or investment property.

The Bottom Line

At the end of the day, the FHA’s rules only allow one of their loans per household at any given time, even if the properties are located in different states. This minimizes risk and prevents misuse of FHA-insured financing.

If your circumstances truly warrant an exception, be prepared to thoroughly document your situation. Work with a knowledgeable loan officer to explore whether alternatives like a conventional 97 mortgage might better suit your needs.