Can You Use an FHA Loan If You Already Own a House?

Buying a home is an exciting milestone in life. For many a Federal Housing Administration (FHA) loan is the gateway to affordable homeownership. With low down payments and flexible credit requirements FHA loans help first-time buyers and repeat buyers alike achieve the dream of owning their own home.

But what if you already own a house and want to buy another one? Can you get a second FHA loan?

The short answer is maybe. The FHA has rules about who can qualify for multiple FHA-backed mortgages. However, some exceptions allow borrowers to take out another FHA loan under special circumstances.

Keep reading to learn more about FHA loan guidelines, requirements to qualify for two FHA mortgages, and tips for navigating the process.

What Is an FHA Loan?

The FHA is a federal agency that insures loans made by private lenders. It was created in 1934 to encourage homeownership and stimulate the housing market.

Key features of FHA loans include:

• Low Down Payments – Borrowers only need 35% down for credit scores above 580 and 10% down for scores between 500-579 Conventional loans typically require 5-20% down,

• Lenient Credit Requirements – You can qualify with a credit score as low as 500 and higher debt-to-income ratios.

• Mortgage Insurance – FHA loans require upfront and annual mortgage insurance premiums. Rates are competitive with conventional loans.

These features make FHA financing attractive to first-time homebuyers and repeat buyers. FHA loans can be used to purchase primary residences, not investment properties or second homes.

When Can You Get an FHA Loan for a Second Home?

In general, borrowers cannot take out multiple FHA loans at the same time. However, FHA guidelines provide a few exceptions where you can qualify for a second FHA-backed mortgage.

According to FHA rules, the exceptions are:

• Relocation for Employment – If you get a new job that requires relocating at least 100 miles away, you may qualify for a second FHA loan before selling your current home.

• Increase in Family Size – If your family grew too large for your current FHA-financed property, you may be approved for another FHA loan subject to certain requirements.

• Vacating a Jointly Owned Property – Borrowers who are vacating a property co-owned with an ex-spouse or partner may obtain another FHA mortgage.

• Cosigning – Someone who previously cosigned on an FHA loan but does not reside there can potentially be approved for their own FHA mortgage.

These scenarios represent cases where borrowers have a legitimate need for another FHA loan despite already having one. Make sure you understand the specifics of your situation and can satisfy FHA stipulations before pursuing a second mortgage.

What Are the Requirements for a Second FHA Loan?

Borrowers seeking another FHA loan generally need to meet all the standard eligibility requirements:

• FICO Credit Score – At least 580 for the minimum 3.5% down payment on a second FHA loan. Scores between 500-579 require 10% down.

• Debt-to-Income Ratio – Your total monthly debt payments, including both mortgages, should not exceed 43% of gross monthly income.

• Cash for Downpayment and Closing Costs – You’ll need funds available for your down payment as well as closing costs. Total costs are typically between 2-5% of the purchase price.

• Stable Income/Employment – Lenders want to see at least 2 years of steady income and employment history. Gaps may require letters of explanation.

In addition, you must satisfy FHA occupancy requirements. The new property you purchase must become your primary residence. You’ll need to move in within 60 days and live there for at least 1 year. FHA loans cannot be used to buy second homes or investment properties.

Finally, make sure you understand the exceptions and have documentation to support your specific situation. For example, if you relocated for a new job, have proof of transfer or employment more than 100 miles away.

Thoroughly review FHA guidelines and consult with lenders to confirm you meet all requirements before submitting an application for a second FHA mortgage.

Pros and Cons of Having Multiple FHA Loans

There are some potential advantages to financing two homes with FHA loans:

Pros

• Lower minimum down payments and credit requirements than conventional mortgages

• May allow keeping first home as a rental property for added income

• Competitive mortgage insurance rates compared to private mortgage insurance (PMI)

However, there are also risks to weigh:

Cons

• Higher monthly costs from two mortgage payments

• Must meet stricter debt-to-income requirements

• Second loan may be at a higher interest rate

• No guarantees for qualifying or being approved

Carefully consider both the benefits and drawbacks when deciding if pursuing multiple FHA mortgages fits your financial situation.

Tips for Getting a Second FHA Home Loan

If you want a second FHA mortgage, here are some tips to boost your chances of approval:

• Pay down debts to reduce your overall obligations and improve your debt-to-income ratio.

• Build up your credit score into the 580+ range with positive payment history.

• Save for at least a 3.5% down payment, closing costs, reserves and moving expenses.

• Explain any gaps in employment or income needed to satisfy FHA underwriting guidelines.

• Gather documentation to prove your qualifications for an FHA exception like the 100-mile relocation rule.

• Work with an experienced FHA lender who can guide you through program requirements and the mortgage process.

With proper preparation and guidance, selected borrowers can successfully obtain FHA financing on a second home. Make sure to do your homework beforehand to understand eligibility and improve your chances.

The Bottom Line

FHA loans provide a path to homeownership for many buyers. And yes, under certain circumstances, you can qualify for another FHA loan if you already have an existing FHA-insured mortgage.

The key is fully understanding FHA occupancy rules and having a situation that fits one of the exceptions for a second mortgage. If so, make sure you meet all credit, income, down payment and other requirements to get approved.

Buying another home is a big financial move. If you’re interested in getting a second FHA loan, consult with a loan officer early on to assess if it may work for your situation. They can provide guidance on your options, the approval process, and steps to take for a smooth transaction.