How Many Times Can You Use an FHA Loan? A Complete Guide

Getting an FHA loan can be a great way for many homebuyers to achieve the dream of homeownership With flexible credit requirements, low down payments, and backing from the federal government, FHA loans open doors that may seem closed to those with less-than-perfect credit or limited funds for a down payment

But if you already have an FHA loan on your current home, can you get another one for your next home purchase? Let’s dig into the details on FHA loan use.

The Basics of FHA Loans

First, a quick primer on what makes FHA loans unique:

• Low down payments FHA loans only require a 35% down payment if your credit score is 580 or above Even borrowers with scores between 500-579 can qualify with a 10% down payment,

• Lenient credit requirements: You can qualify with a credit score as low as 500, though most lenders require at least 580. Conventional loans typically want scores of 620 or higher.

• Backed by the government: FHA loans are insured by the Federal Housing Administration. If you default, the government pays the lender, so lenders view these loans as lower risk.

• For primary residences FHA loans must be used to purchase your primary home where you’ll live at least 50% of the time You can’t use them for second homes or investment properties

How Many FHA Loans Can You Have at Once?

Here’s the main limitation on FHA loan use: You can generally only have one FHA loan at a time.

This “one FHA loan rule” aims to prevent buyers from tapping into multiple FHA loans to snap up investment properties.

Since the FHA wants you to use their low down payment loan option as your path to becoming a homeowner, they limit you to one loan on your primary residence.

However, this doesn’t mean you only get one FHA loan ever. The key is that you typically can’t have more than one loan at the same time.

You can absolutely get another FHA loan in the future after you pay off your current one. For instance, if you get an FHA loan now to buy your first home, you can get another FHA loan in 5-10 years to move up to a larger place once you build more equity and savings.

Just make sure you sell your current home and pay off the first FHA mortgage before closing on the next property.

When Can You Qualify for Multiple FHA Loans?

While uncommon, there are some exceptions where you can qualify for two FHA loans at once:

• Relocation for a new job: If your new job is far from your current home, requiring an unreasonable commute, you may be able to get a second FHA loan before selling the first home.

• Divorce situation: If you jointly own a home with a soon-to-be ex-spouse who will remain in the home, you may qualify for a new FHA loan on your own for your next residence.

• Home no longer fits family size: If your family has grown significantly and your current FHA home is now too small, you may be allowed a second loan, but you’ll need at least 25% equity in the current property.

• Co-signing for another borrower: If you co-sign an FHA loan to help out a family member, you can still get your own FHA loan. But co-signing makes you responsible for that debt if they default!

In these limited cases, you may be allowed to have two active FHA loans at the same time. But you’ll need to prove the exception applies to your situation.

And of course, you’ll need to be able to afford both mortgage payments each month. Having a total debt-to-income ratio below 43% is key to approval.

What Happens if You Already Have an FHA Loan?

If you have an existing FHA loan and want to buy another home, you have a few options:

• Sell first, buy next: Sell your current FHA home, pay off that loan, then apply for a new FHA loan on your next house. This route is less complicated.

• Apply for a conventional loan: See if you now qualify for a conventional loan with higher credit scores or more assets. But you may not be approved if the second payment pushes your DTI too high.

• Cash-out refinance: Refinance your current FHA loan and take cash out for the next home’s down payment. But your home must have gained enough equity, and you’ll end up with a higher payment.

• Qualify for an exception: If your situation truly aligns with an exception like divorce or relocation, provide documentation to show you qualify for two FHA loans.

No matter what, think hard before taking on two mortgage payments. While doable for some borrowers, it strains most budgets, leaving little wiggle room should an emergency arise.

What Are the Requirements to Qualify for an FHA Loan?

Before considering applying for an FHA loan, make sure you can meet the requirements:

• Credit score: The minimum is 500, but most lenders want at least 580. The higher your score, the better.

• Debt-to-income ratio: Your total monthly debt payments, including the new mortgage, should be below 43% of gross income.

• Down payment: Just 3.5% if your score is 580+, or 10% if your score is 500-579. Gift funds are allowed.

• Loan limits: The maximum FHA loan amount varies by county, but is typically around $420,000 for a single-family home.

• Mortgage insurance: You’ll pay an upfront mortgage insurance premium of 1.75% of the loan amount, plus ongoing monthly mortgage insurance payments.

• Cash reserves: Most lenders want to see you have 2-6 months of mortgage payments saved as reserves.

• Foreclosures: You’ll need to wait 3 years after a foreclosure to qualify for a new FHA loan.

As long as you meet these requirements, you can certainly land an FHA loan. Just keep the “one loan at a time” rule in mind down the road.

Strategies for Getting Another FHA Loan Later

If you want to get another FHA loan after your current one, employ strategies to position yourself during homeownership:

• Make payments on time to maintain excellent credit. Having scores above 680 will really help your next loan application.

• Build home equity through your payments and appreciation. Equity may allow you to qualify for a better rate on the next loan or cash-out refinance your current FHA loan.

• Save for a larger down payment. The more you can put down, the lower your payments and interest costs will be on the new loan. Shooting for at least 10% down provides options.

• Pay down other debts over time to decrease your DTI for the new loan application. Knock out installment loans and credit cards to free up cash flow.

Following these tips sets you up for smooth sailing when it comes time to get another FHA loan later down the road.

Alternatives to Multiple FHA Loans

If getting multiple FHA loans just won’t work for you, consider these options instead for your next home purchase:

• Conventional 97 loan: This option only requires a 3% down payment and has similar requirements to FHA loans. You can get as many conventional loans as you want.

• Piggyback loan: You pair an 80% first mortgage with a 10% second mortgage to get financing with just 10% down but avoid mortgage insurance.

• Improve your credit: If you can get your score above 620, more options like conventional loans open up without FHA restrictions.

• Save a larger down payment: Options like conventional loans appear if you can make a 20% down payment, for example. Big down payments get you the best rates and eliminate mortgage insurance.

• Pay off debts: Reducing your DTI by paying down credit cards and other debts can help you qualify for a wider variety of mortgage products.

The Bottom Line

At the end of the day, the number of FHA loans you can have comes down to this:

• You can have as many FHA loans as you want over your lifetime.

• But in most cases, you can only have one FHA loan at a time since it must be used to purchase your primary residence.

• There are a few exceptions like relocation or divorce where you can qualify for two FHA loans simultaneously.

• After you pay off an FHA loan, you’re free to apply and get another one for your next home.

While an FHA loan provides a great entry point into homeownership, make sure you consider both its benefits and restrictions before jumping in. With the right planning and preparation, you can absolutely use FHA financing as a springboard to achieving your long-term housing goals.