Can You Get an FHA Loan for a Second Home? Everything You Need To Know

Buying a second home can be an exciting prospect. A vacation home or rental property can provide extra income or a relaxing getaway But financing a second property comes with unique challenges Many homebuyers consider using an FHA loan. But can you get an FHA loan for a second home?

I’ve purchased homes with conventional and FHA loans. So I understand the pros and cons of each when buying a primary residence or second home. In this article, I’ll explain FHA loan requirements, discuss if they can be used for second homes, and offer tips for getting approved.

What is an FHA Loan?

An FHA loan is a government-backed mortgage insured by the Federal Housing Administration. It offers low down payments, flexible credit requirements, and low closing costs. FHA loans have 3 main advantages:

• Low Down Payments – You can get an FHA loan with just 3.5% down. This makes homebuying more accessible. Conventional loans typically require 10-20% down.

• Lower Credit Requirements – FHA has flexible credit standards They’ll approve borrowers with credit scores as low as 580. Many conventional loans require scores of 620 or higher.

• Low Closing Costs – FHA limits origination fees and closing costs. This keeps more money in your pocket at closing.

These features make FHA loans ideal for first-time buyers and those with limited savings or credit challenges. But how do they work for a second home? Let’s take a closer look at the program’s occupancy rules.

FHA Occupancy Rules

All FHA borrowers must plan to occupy the home as their primary residence. The FHA handbook (HUD 4000.1) states:

“At least one Borrower must occupy the Property within 60 Days of signing the security instrument and intend to continue occupancy for at least one year.”

This means FHA loans can only be used to purchase a primary residence, not a second home or investment property. The lender will verify you plan to live in the home through the loan application and other documentation.

FHA does make an exception for renovation loans like the 203(k). Borrowers aren’t required to live in the home during repairs. But they still must plan to occupy it as their primary residence when the rehab is complete.

Can an FHA Loan be Used for a Second Home?

The short answer is no, you cannot use an FHA loan to buy a second home. The occupancy rules clearly state the home must be your primary residence.

FHA also prohibits borrowers from having multiple FHA mortgages at the same time. Their handbook says:

“FHA will not insure more than one Property as a Principal Residence for any Borrower.”

This prevents buyers from using FHA financing on multiple homes. You can only have one FHA loan at a time, and it must be on your primary residence.

Tips for Buying a Second Home

Since you can’t use FHA financing, what are your options for buying a second property? Here are some tips:

• Conventional Loan – Conventional mortgages allow second homes and have more flexible occupancy rules than FHA. You’ll likely need a 10-20% down payment and solid credit scores.

• Cash-Out Refinance – If you have equity in your current home, you may be able to cash it out to buy a second property. You can tap up to 80% of your equity with some lenders.

• Home Equity Loan – Consider taking out a home equity loan or HELOC on your current property. The proceeds can be used to purchase a second home.

• Save Up – Come up with a savings plan to build up your down payment over time. Second homes typically require larger down payments of 10-20%.

• Investment Property Loan – If you plan to rent out your second home, an investment property mortgage may be an option. You’ll need 20-30% down and have to meet stricter criteria.

The bottom line is FHA loans are only for primary residences. But conventional mortgages, home equity products, and real estate investment loans can provide the financing you need for a vacation property or rental. Chat with a loan officer to discuss the best options for your situation. With the right strategy, your dream of owning a second home can become reality.

Frequently Asked Questions

Can I get an FHA 203k renovation loan on a second home?

No, FHA 203k loans also require the home be your primary residence after renovations are complete. They cannot be used to rehab a second home.

What if I already have an FHA loan on my primary residence?

You cannot take out a second FHA loan for a second home if you already have one. You can only have one FHA mortgage at a time.

Can I rent out my second home if I use a conventional loan?

Yes, most conventional loans allow second homes to be rented out for a portion of the year. But there may be limits, so check with your lender.

What’s the minimum credit score for a second home loan?

Credit requirements vary by lender, but most require a minimum score of 620-680 for a second home. The down payment amount and your income also factor in.

How much down payment do I need for a second home?

Second homes typically require 10-20% down. Investment properties may need 20% or more. The specific amount depends on your finances and the type of loan.

The Bottom Line

While FHA loans are great for buying your primary residence, their occupancy rules prohibit using them for second homes. Conventional mortgages are a better fit if you want a vacation property or rental income. With proper planning, you can still achieve your goal of owning multiple properties. Talk to a lender to explore mortgage options that match your financial situation.