“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.
The Ins and Outs of Getting an FHA Loan for a Second Home
Buying a second home can be an exciting prospect Whether you want a vacation getaway, plan to retire soon, or need to relocate for work, having two properties allows you more flexibility However, figuring out how to finance a second home can be tricky. This is where an FHA second home loan comes in handy.
In this comprehensive guide, we’ll walk through everything you need to know about obtaining an FHA mortgage for a second residence Below, we’ll cover
- What is an FHA loan?
- FHA requirements for second homes
- Differences from primary residence loans
- Tips for qualifying for an FHA second home loan
- Pros and cons of FHA second mortgages
Let’s get started!
What is an FHA Loan?
First, let’s quickly review what an FHA loan is. FHA stands for Federal Housing Administration – a government agency that insures mortgages issued by approved lenders. This insurance protects the lender if the borrower defaults, allowing them to offer more flexible terms.
Some perks of FHA loans include:
- Low down payments – FHA allows down payments as low as 3.5%
- Lenient credit requirements – Minimum 580 FICO score
- Low closing costs
- Accessible for first-time buyers
These features make FHA mortgages popular, especially among first-time homebuyers. But FHA insurance can also be used to finance second homes in certain scenarios.
FHA Requirements for Second Home Loans
FHA loans are designed for primary residences occupied by the borrower. But some exceptions allow buyers to obtain FHA financing for a second property.
According to HUD guidelines, the FHA can insure a second mortgage if:
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You are relocating and your new job is outside of a reasonable daily commute. Distance requirements vary by lender.
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Your family size has increased, and your current home no longer meets your needs.
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You are vacating a jointly-owned property, such as due to divorce.
In these cases, you don’t have to sell your current FHA-insured property to qualify for a second loan. Other situations may also warrant an exception, so check with your lender.
Differences from Primary Residence FHA Loans
When applying for an FHA second home mortgage, expect a stricter underwriting process. Lenders want to verify the home will not be used as an investment property.
Here are some key differences to be aware of:
Higher Down Payment
While FHA allows as low as 3.5% down for primary residences, second homes require at least a 10% down payment. This helps ensure you have more equity in the property.
No Gifts Allowed
You cannot use gifted funds from relatives or nonprofits for your down payment on a second home FHA loan. The larger required down payment must come from your own savings or other eligible assets.
Lower LTVs and Loan Limits
Your maximum loan amount may be lower for a second home, due to lower loan-to-value (LTV) ratios. The 2022 FHA national loan limit for single-family homes is $420,680. But for second homes, LTV caps may reduce the amount you can borrow.
Higher Mortgage Insurance
FHA loans require upfront and annual mortgage insurance premiums (MIP). The upfront MIP is 1.75% of the base loan amount. On second homes, the annual MIP is 0.85% of the loan balance, versus just 0.45% on primary residences.
Tighter Debt-to-Income Ratios
Lenders will scrutinize your debt-to-income (DTI) ratio more carefully, to verify you can truly afford both mortgage payments. Many limit second home DTIs to no more than 38%.
Pre-Approval is Critical
Aim to get pre-approved before making an offer on a second property. Pre-approval provides a letter from your lender confirming you meet credit and income requirements for the loan amount, giving sellers confidence in your ability to obtain financing.
Tips for Qualifying for an FHA Second Home Loan
Qualifying for financing on two homes can be challenging. Here are some tips to boost your chances:
Shop lenders – Compare mortgage rates and DTI requirements. Find a lender flexible enough to approve you within guidelines.
Save for a larger down payment – Putting down more than the 10% minimum looks better to lenders and gets you a lower rate.
Keep existing mortgage payments low – If you have an FHA loan on your current primary residence, refinancing to a lower payment before applying can help your DTI ratio.
Pay down other debts – Reducing credit card, auto, and student loan balances also helps lower your DTI.
Check your credit – Good credit is key. Review your credit reports and improve your score if needed before applying.
Document your housing needs – Explain to the lender clearly why you require the second property. Providing supporting documents helps your case.
Consider co-borrowers – Adding a spouse or family member to the application strengthens it if they have good credit, income, and assets.
With careful planning and preparation, you can potentially meet FHA second home requirements even if they are more restrictive than primary residence loans.
Pros and Cons of FHA Second Home Loans
FHA financing offers flexibility in financing a second property, but is it the right option for you? Here are some key pros and cons:
Pros
- Low down payments allow buying sooner
- FHA is more lenient with lower credit scores
- Streamlined underwriting process compared to conforming second homes
- May be an option even if you have an existing FHA mortgage
Cons
- Higher mortgage insurance costs than conventional loans
- Restrictions on gifted down payments
- Potentially lower loan amounts due to lower LTVs
- Tighter DTI requirements than primary residence loans
Weigh these considerations against other products, like conventional second mortgages or portfolio loans. An experienced loan officer can help you select the optimal loan type for your situation.
The Bottom Line
Obtaining an FHA loan for a second home is possible, but requires careful planning and preparation. Following the tips above will put you in the best position to qualify. Be sure to check specific guidelines with your lender and document your home purchase rationale. With persistence and smart planning, you can make your dream of owning two homes a reality.
FHA Loan Requirements for a Second Home
Regarding an FHA loan for a second home, the following requirements and conditions are helpful to know before diving into the process:
- The new residence must be at least 100 miles away from the old one.
- The current property must have an LTV (loan-to-value) ratio of 75% or less.
- Your situation has changed or is changing to the point of having to move into a second home.
- Your credit score must be 580 or better.
- You can’t have any recent foreclosures or bankruptcies.
- You have proof of consistent income and employment.
FHA Loan Conditions for a Second Home
Can you get an FHA loan for a second home? Not everyone is eligible for this program because you must have a good reason for no longer staying in the home you bought with your first FHA loan. You should be able to make down payments and have a solid credit score to move forward. The FHA allows you to buy a second home for main living purposes but will not help you fund a second home to rent for money or as a vacation home.
Here are some ways you’d qualify for an FHA loan for a second property and how you’d be an exception to the guidelines.
You needed to relocate for a job change, such as being moved to another branch or getting a promotion. If you can’t reasonably commute to your employer, you could be eligible for an FHA loan for a second home. You don’t necessarily need to sell the first home to live in the second one and don’t need to move back into it as your primary home.
The rule is that there must be at least a 100-mile distance between the two properties. There are some extreme cases where you could still qualify when the homes are closer. You might also be able to rent out the first property while living in the second.
Second Home With FHA – Is This Possible?
FAQ
Can I buy a 2nd home with an FHA loan?
What is the FHA 75 rule?
Is it harder to get a loan for a second home?
Can a borrower own 2 second homes?
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%.
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 buy a second home with a VA loan?
The specific income, credit score and DTI requirements can vary by lender and loan type. You can’t finance the purchase of a second home with government-backed mortgages, like Department of Veterans Affairs (VA) loans and Federal Housing Administration (FHA) loans. These loans can only be used to purchase primary homes.
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 get two FHA loans at the same time?
FHA loan rules say that as a general rule, you can’t get two FHA loans at the same time. But there are exceptions for situations that involve a work relocation, changes in family size, or even cases where the co-borrower on one loan wants to own a home in her own right with a new FHA mortgage.
How does a second home loan work?
To determine the terms of your loan for a second home, your lender will take a look at your credit score and history, current housing market conditions and your debt-to-income ratio (DTI). You’ll have to meet DTI requirements to qualify for a mortgage on a second home. DTI refers to the amount of debt you hold versus the amount of money you make.