Everything You Need to Know About Getting an FHA Loan As a Second Time Home Buyer

An FHA loan is a type of mortgage that is backed by the federal government. It can help buyers with limited cash reserves and lower credit scores achieve the dream of homeownership.

If you have an existing FHA loan, you may wonder if you can get a second FHA loan to buy a new home. There is no limit to how many times a borrower can get an FHA loan. But theres a catch: You can only have one at a time unless you meet specific criteria.

Purchasing a house for the second time can be an exciting experience. You’ve been through the home buying process before, so you have a general idea of what to expect. However, your circumstances are likely different now compared to when you bought your first home. Your financial situation has probably changed, you may have a family now if you were single before, and your needs and wants for a home could be different.

One thing that may not have changed is your desire to get an affordable loan, like an FHA loan FHA loans are popular among first time home buyers, but repeat buyers can get them as well Here’s what you need to know about getting an FHA loan as a second time home buyer.

FHA Loan Overview

An FHA loan is a government-backed mortgage insured by the Federal Housing Administration (FHA) Here are some key features

Low down payment – You only need 3.5% down for an FHA loan. This makes it one of the most affordable loan types for buyers who don’t have a lot saved for a down payment.
Lenient credit requirements – You can qualify for an FHA loan with a credit score as low as 580 if you have a 10% down payment. The minimum score is 500 with a 10% down payment.
Low mortgage insurance – FHA loans require mortgage insurance. But FHA mortgage insurance rates are low compared to conventional loans.
Fixed interest rates – FHA loans offer fixed rates so your monthly payment won’t change. The rate will be based on current market rates.
Longer lock periods – You can lock in an interest rate for up to 90 days so you don’t have to worry about rates going up before you close.
Loans for rehab projects – FHA 203(k) loans allow you to roll rehab costs into your mortgage. This can be helpful if you want to fix up a fixer upper.
One-time close construction loans – FHA one-time close loans let you buy land and build a home with a single loan that converts to a permanent mortgage after construction.
Assumable financing – FHA loans can be assumed by a new buyer if you sell. This can make your home easier to sell later.
No prepayment penalties – You can pay off an FHA loan early without penalty.

FHA Loan Requirements

FHA home loans have requirements you’ll need to meet to qualify:

Down payment – At least 3.5% of the purchase price is required. Gifts and grants can be used.
Debt-to-income ratio – Your total debt payments divided by gross income typically can’t exceed 43%. But some lenders allow up to 50%.
Credit score – A minimum 580 FICO score is required in most cases. A higher score may get you a better rate.
Occupancy and property types – You must plan to move into the home within 60 days. Single family homes, condos and townhouses are eligible.

In addition to these requirements, you’ll need enough income, assets, and employment history to qualify for the loan amount. FHA guidelines are fairly flexible, but you still want a solid financial profile. This helps ensure you can afford the mortgage payment comfortably.

Benefits for Second Time Buyers

FHA loans offer several benefits for repeat buyers:

Small down payments – Even if you don’t have 20% down, low FHA down payments make it easy to buy again. This leaves more of your cash free for other uses.
Move up home – The low down payment requirements give you flexibility to move up to a larger, more expensive house that may have been out of reach otherwise.
Consolidate debt – You can roll high interest debt like credit cards into your new mortgage at a lower rate through an FHA cash-out refinance. This can help reduce monthly payments.
Renovation financing – FHA 203(k) loans let you finance home improvements so you can update your new place over time.
Mortgage portability – If you sell your home later, FHA loans can transfer to the new owner more easily than conventional loans. This makes your home more saleable.
Home equity access – After a few years of home price appreciation, FHA cash-out refinancing unlocks your equity for other uses.
Lower mortgage insurance – Repeat buyers with less than 20% down avoid the higher mortgage insurance rates charged by conventional loans.

Tips for Second Time FHA Borrowers

If you’re considering an FHA loan for your next home purchase, keep these tips in mind:

Check your eligibility – Make sure you meet all the FHA requirements before applying. This helps avoid headaches later.
Get pre-approved – FHA pre-approval shows sellers you’re a serious buyer. It also lets you shop knowing your price range.
Compare loan estimates – Don’t just go with the first FHA lender you find. Compare rates and fees from multiple lenders.
Mind closing timelines – FHA loans can take longer to close. Plan ahead and get all your paperwork in ASAP.
Understand mortgage insurance – Know how much your FHA mortgage insurance will be and the options for cancellation later.
Research down payment help – If you need help with the down payment, look into down payment assistance programs in your state. Many pair with FHA loans.
Ask about renovation loans – If your new home needs work, consider an FHA 203(k) rehab loan to finance improvements.
Assume existing FHA loans – Assuming the seller’s FHA mortgage can save time and headaches. Make sure to get lender approval.

Alternatives to Consider

FHA loans offer great benefits for second time buyers. But here are a few other options to consider as well:

Conventional 97 – Conventional 97 loans only require 3% down. And you can probably avoid mortgage insurance with a 20% down payment.
VA loans – VA loans require zero down payment for veterans and active duty military. Rates are competitive with FHA.
USDA loans – No down payment is required on USDA loans for homes in designated rural areas. Income limits apply.
Portfolio loans – Local banks may offer portfolio loans with low down payments and flexible requirements based on your financial profile.
Down payment help – Down payment assistance programs offer grants and low rate second mortgages to cover most or all of your down payment.

The Bottom Line

FHA loans are a great option if you want an affordable mortgage for your second home. The low down payment requirement makes it possible to buy again even if you have limited funds saved. And features like 203(k) rehab loans allow you flexibility in choosing your new home. Just be sure to shop lenders and compare all your options. This helps ensure you get the best rate and terms.

Can You Get an FHA Loan More Than Once?

You can get multiple FHA loans in your lifetime. But while you dont need to be a first-time homebuyer to qualify, generally speaking, you can only have one FHA loan at a time. This prevents potential borrowers from using the loan program to buy investment properties.

However, you may qualify for an additional FHA loan without selling or paying off your current property under the following circumstances:

Youre relocating to an area thats beyond reasonable commuting distance to your current residence or where affordable rental housing is not available.
Youre leaving a jointly owned property to buy a home, and the co-owner plans to remain in the home (such as in a divorce).
You cosigned an FHA loan for someone else and now want to purchase your own home.

If you want to purchase another home with an FHA loan to accommodate your growing family, youll need to provide evidence of the increase in dependents and your current homes failure to meet your needs. You will also need at least 25% in equity in your current home to be eligible; if youre not there yet, youll need to pay down the loan balance until you reach 25% in equity to qualify.

As long as you meet one of these exceptions, there is no required waiting period between FHA loans.

Are you ready to apply for an FHA loan? Even if you already have an FHA loan, its a good idea to run through the loan requirements before applying for a new one.

Down payment and credit score: Your required down payment will depend on where your score falls. You can put as little as 3.5% down on an FHA loan if your credit score is 580 or higher. Youll need a downpayment of 10% if your credit score is between 500 and 570.
Debt-to-income ratio (DTI): Your DTI is the total of your monthly debt payments as a percentage of your monthly gross income. To qualify for an FHA loan, your DTI should be under 43%. To illustrate, lets say the monthly mortgage payment on the home youre considering would be $1,500 and your gross monthly income is $5,000. The amount of your other monthly debt obligations cannot be higher than $650. That said, you may be able to get approved with a DTI of up to 50% if the loan does not pose an elevated risk to the lender.
Mortgage insurance: FHA loans require you to pay mortgage insurance, which is divided into two types of payments. You will be charged a flat fee of 1.75% of the loan amount at the time of closing, which can be rolled into your loan if you dont have the cash on hand. A monthly charge will also be tacked on to the mortgage payments to cover mortgage insurance for the life of the loan. This payment is also a percentage of the loan amount and is determined by the loan size, term and loan-to-value ratio (LTV).
Other criteria: The lender will request your Social Security number and proof of income and assets to determine how much home you can comfortably afford. You should also be clear of any foreclosures for at least three years to qualify for an FHA loan.

Keep in mind that these are just general qualifying criteria. Some FHA-approved lenders have stricter requirements for potential borrowers. Its best to speak with a loan officer to get a better idea of their FHA loan requirements.

Second Home With FHA – Is This Possible?

Can a second-time homebuyer take out another FHA loan?

If you currently have a Federal Housing Administration (FHA) loan, you may be able to take out another FHA loan for a new primary residence. The mortgage process for a second-time homebuyer generally follows the same steps as a first-time homebuyer.

Are FHA loans for a first-time homebuyer?

Some probably get the idea that FHA loans are intended for those in need or who have not owned a home before from reviewing the first-time buyer programs offered by state or local agencies–such first-time homebuyer programs are often used in conjunction with government-backed mortgage programs like the USDA and FHA home loans.

Can a first-time homebuyer get a second-time mortgage?

And remember, if you meet first-time homebuyer criteria, don’t rule out first-time homebuyer programs. In terms of mortgages, second-time homebuyers have numerous options, including conventional, FHA and VA loans. A Pennymac Loan Expert can help you compare loans and work with you to find the one that best fits your needs.

Can you buy a second home with an FHA mortgage?

Hence, the lender is expected to offer leeway for occupancy in such cases. Some borrowers may need or want a second property, and hope to purchase that property with an FHA mortgage. What is FHA’s stance on using an FHA mortgage to purchase a second home?