“Can I get an FHA loan for a second home?” is a common question among homeowners wanting to purchase a secondary property as their primary living space. In this guide, you’ll learn all about getting an FHA loan for a second home, including the requirements and conditions.
FHA loans are a popular mortgage option, known for low down payments and flexible credit requirements. If you already have an FHA-backed mortgage, can you qualify for another FHA loan to buy a second house?
The answer is yes, you can get an FHA loan for a second home in certain situations. However, there are occupancy rules and other requirements to be aware of.
In this comprehensive guide, we’ll cover everything you need to know about using FHA financing for a second home purchase
FHA Occupancy Rules For Primary Residence
The FHA has occupancy standards for properties purchased with an FHA mortgage. Some key guidelines include:
- You must occupy the home as your primary residence.
- You need to move into the property within 60 days of closing.
- You must live in the home as your principal residence for at least 1 year.
These occupancy rules apply for both an initial FHA purchase loan and an FHA streamline refinance. So FHA financing can never be used for a vacation home or investment property.
When Can You Get an FHA Loan For a Second House?
Given the FHA occupancy requirements are there any scenarios where you can qualify for FHA financing on a second home?
The answer is yes, but only under certain circumstances considered an “undue hardship.” Some examples include:
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You’re relocating for employment: If your new job is at least 100 miles away from your current residence, FHA may approve a second loan. You’ll need to provide documentation showing the job necessitates the move.
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Your family size increased: If you’ve added legal dependents and now need a larger home, FHA may permit a second loan. Your current home should be paid down to at least 75% of the appraised value.
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You’re vacating a jointly-owned property If you owned your current home with someone else and are now moving out, you may qualify for a second FHA loan
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You were a non-occupying co-borrower: If you were on the mortgage but didn’t live in the home, FHA allows you to buy your own property with a second loan.
In all cases, you’ll need to prove the second home is your new primary residence, not a vacation or rental property.
FHA Loan Requirements For a Second Home
If you meet one of the exception scenarios, what are the requirements to get approved for an FHA second home loan?
Down Payment: At least 15% down is required on a second FHA property. You can’t use a gift for the down payment.
Credit Score: A minimum credit score of 580 is required. You also can’t have any recent bankruptcies or foreclosures.
Debt-to-Income Ratio: Your back-end DTI must be below 43% including both mortgage payments.
Occupancy Timing: You need to move into the new property within 60 days and live there for at least 12 months.
Property Type: The home must be a single-family residence, PUD, condo, or townhome. Two to four units may be permitted in some cases.
Loan Amount: The maximum FHA loan limit applies, based on the county where the property is located.
How to Apply for an FHA Loan on a Second House
If you meet eligibility requirements, how do you go about getting approved for an FHA second home loan? Follow these key steps:
1. Find an FHA lender
You need to find a lender approved to originate FHA loans. Compare multiple lenders to find the best rates and fees.
2. Gather documentation
To verify employment, income, assets, and credit, have these items ready:
- W-2s and recent pay stubs
- Bank statements
- Tax returns
- Debt-to-income ratios
- Credit report
3. Get pre-qualified
After reviewing your financial details, the lender will provide a pre-qualification letter listing the maximum FHA loan amount you can afford.
4. Shop for homes
Work with a real estate agent to find homes in your price range that meet FHA requirements regarding location, condition, etc.
5. Make an offer and open escrow
When you find the perfect home, make an offer and open an escrow account. At this point, earnest money and escrow deposits are required.
6. Complete full application
Provide any other needed paperwork for income, assets, credit, and the Certificate of Eligibility.
7. Get home appraised
An FHA appraisal will be ordered to establish the property’s fair market value and ensure it meets minimum property standards.
8. Get final loan approval
The underwriter will review everything and issue a final loan decision. This is followed by the closing disclosure outlining final loan costs.
9. Close on the home
At the closing appointment, you’ll sign all documents to finalize the transaction and take ownership.
The entire process takes about 45-60 days from start to finish.
Pros of an FHA Second Home Loan
What are some of the biggest advantages of using FHA financing for a second house?
Low Down Payment
The minimum down payment is just 15% of the purchase price, compared to 20% or more for conventional second home loans.
Better Interest Rates
FHA loans often have lower interest rates than other loan types, saving you money over the life of the mortgage.
Flexible Credit Requirements
FHA has more lenient credit standards than conventional loans. The minimum FHA credit score is just 580.
Low Monthly Mortgage Insurance
FHA loans require monthly mortgage insurance premiums, but rates are lower than with other low down payment loan options.
No Prepayment Penalties
You can pay off an FHA loan early without expensive penalties, providing flexibility.
Cons of an FHA Second Home Loan
However, there are also some potential drawbacks with FHA second home financing to keep in mind:
Strict Occupancy Rules
You must follow FHA guidelines and occupy the home as your new primary residence for at least 1 year.
Upfront Mortgage Insurance Premium
FHA loans require an upfront mortgage insurance premium of 1.75% of the loan amount. This gets rolled into the loan.
Lengthy Closing Time
FHA loans can take a bit longer to close due to the appraisal and documentation requirements.
Lower Loan Limits
FHA loan limits are capped, so financing amounts for higher-priced homes are lower than with conventional loans.
Not for Investment Properties
You can’t use an FHA loan for a strictly investment purpose. It must be your primary or secondary residence.
Alternatives to FHA Second Home Loans
If you don’t qualify for a second FHA loan, what are some alternative financing options?
Conventional Loan
You can get a conventional loan for a second home with at least 10% down and good credit. Interest rates may be higher than FHA.
USDA Loan
For second homes in eligible rural areas, USDA loans are available with 0% down payment. Credit and income limits apply.
Home Equity Loan
If you have sufficient equity in your current home, a cash-out refinance or home equity loan may provide funds for a second house.
Family Loans
Under some circumstances, private financing from family or friends may be an option for a second home purchase.
Cash Purchase
If possible, buying a second property with all cash sidesteps mortgage qualification requirements. But this is only feasible for some buyers.
The Bottom Line
Qualifying for financing on a second house with an FHA loan is possible if you meet FHA guidelines. Just make sure you fully understand the home occupancy rules and other requirements before applying. Consulting a loan officer can help you determine if an FHA second home loan is the optimal choice for your situation.
What Is an FHA Loan?
Many people use FHA (Federal Housing Administration) loans to purchase their first homes. Acquiring a dream home becomes more accessible to first-time homebuyers with an FHA loan. Qualified applicants must have a decent credit score and make a small down payment.
Although FHA loans are always associated with primary residences, many property owners ask, “Can I use an FHA loan to buy a second home?” The answer is yes, but you must meet several eligibility requirements and follow the FHA’s conditions. While getting an FHA loan for a second home is possible, you cannot use it for investment or vacation purposes; circumstances must show that you cannot stay in your first home anymore.
FHA Loan Eligibility for a Second Home
You may expect a penalty for being a second-time homebuyer looking for an FHA loan, but don’t worry. The FHA considers second-time homebuyers even if they already used an FHA to pay for their first property. These loans are for borrowers who will use the acquired property as their primary residence, not to make money on rentals, as an investment, or for other related reasons.
How You Can Have TWO FHA Loans *100 Mile Rule*
FAQ
Can you get an FHA loan on a 2nd home?
Can you use an FHA loan if you already own a house?
Is it harder to get a mortgage on a second home?
What is the downside of an FHA loan?
What are the FHA home loan rules for second homes & investment properties?
FHA home loan rules for second homes and investment properties are fairly straightforward; it’s the exceptions that can be confusing. Basically, if you want an FHA mortgage, you must be prepared to occupy the property you buy with one. It really is that simple.
Can I get a second FHA loan?
You can get a FHA loan for a second home if you take a job that’s 100 miles from your primary residence, outgrow your current home, vacate a jointly owned property, or you’re a non-occupying borrower who’s looking to buy a house. To get a second FHA loan, you should have a 15% down payment, credit score of 580 or higher, and a DTI that’s under 43%.
Can I get a Fannie Mae loan for a second home?
To get a Fannie Mae loan for a second home, you need: You can get a FHA loan for a second home if you take a job that’s 100 miles from your primary residence, outgrow your current home, vacate a jointly owned property, or you’re a non-occupying borrower who’s looking to buy a house.
Can you buy a second home with a mortgage?
As with a vacation home, a mortgage for a second residence will likely come with stricter requirements. Some homeowners will buy a second home as an investment property. Typically, this means either flipping and reselling the home, or turning it into a rental property.