How to Get a Second FHA Loan: A Step-by-Step Guide

An FHA loan can be a great option for first-time homebuyers or those with less-than-perfect credit. FHA loans require lower down payments and have more flexible credit requirements than conventional loans. But did you know it is possible to get a second FHA loan under certain circumstances?

Getting approved for two FHA loans at the same time is difficult The FHA restricts borrowers to one FHA loan for purchasing a primary residence However, some exceptions allow you to qualify for a second FHA mortgage if you meet the requirements.

In this comprehensive guide, I’ll explain everything you need to know about getting a second FHA loan including

• FHA loan basics
• The exceptions for a second FHA loan
• Steps to qualify for two FHA loans
• Alternative options if you can’t get approved
• Tips for a smooth second FHA loan process

Let’s get started!

Overview of FHA Loan Requirements

First let’s review some key details on FHA loans

• Down payments – FHA allows down payments as low as 3.5% of the purchase price if your credit score is 580 or above.

• Credit scores – Minimum credit score is 580 for the best terms, but scores as low as 500 may qualify.

• Debt-to-income ratio – Total monthly debt payments, including the mortgage, cannot exceed 43% of gross monthly income.

• Mortgage insurance – Required on all FHA loans, including an upfront fee of 1.75% of loan amount and ongoing monthly premiums.

• Usage – FHA loans can only be used to purchase a primary residence, not an investment property.

• One loan at a time – The general FHA rule is you can only have one FHA loan in your name at once.

With these basics in mind, let’s look at how you can get approved for two FHA loans.

When Can You Get a Second FHA Mortgage Loan?

Although rare, there are legitimate reasons under FHA guidelines to qualify borrowers for a second FHA-insured mortgage. Here are the main scenarios:

Relocating for a Job

If you must relocate for a new job or military assignment far from your current home, FHA may approve a second loan to purchase in the new location. Requirements include:

• Documentation verifying your job reassignment and relocation.

• The new job location must be far enough you can’t reasonably commute. FHA guidelines suggest at least 50 miles.

• You must be keeping your first home and renting it out, not selling it.

• The new home must be a reasonable distance from the new job location.

Increase in Family Size

If your family size has increased significantly, and your current FHA home no longer meets your needs, you may qualify for a second FHA mortgage. Requirements include:

• Documentation proving an increase in legal dependents, such as birth certificates.

• Details on why your current home no longer accommodates your larger family.

• The additional mortgage payment must fit within your debt-to-income ratio thresholds.

Co-signing an FHA Loan

If you co-sign on an FHA loan to help another borrower qualify, such as a family member, you can obtain a second FHA loan for yourself. Requirements include:

• Your debt-to-income ratio must allow you to handle both mortgage payments comfortably.

• You must occupy the home you obtain the second FHA loan for and use it as your primary residence.

Divorce Situations

If you divorce your spouse and are awarded your home in the proceedings, your spouse may qualify for a new FHA loan while you keep your existing one. Requirements include:

• Must provide final divorce decree as documentation.

• The home you keep must have been your primary residence.

• Your ex-spouse must move out and purchase a new primary residence for themselves.

As you can see, the scenarios are limited. Next, let’s look at the steps to qualify for two FHA loans.

How to Qualify for Two FHA Mortgage Loans

In addition to documenting the eligible scenarios above, you must also meet other FHA requirements to get approved for two loans:

1. Review credit and income requirements – The minimum FICO score is 580. Total debt-to-income ratio cannot exceed 43%. Make sure your credit and income fit guidelines.

2. Check equity position – If staying in current home, you must have at least 25% equity already built up to tap any remaining equity for the second loan.

3. Save for down payments – Have funds for at least 3.5% down payment on each home if credit score is 580+ (10% down if 500-579 score). Closing costs apply too.

4. Calculate total monthly payments – Include both mortgage payments, taxes, insurance, and other debts. Stay below 43% debt-to-income limit.

5. Examine reserve requirement – Most lenders require enough reserves to cover at least two mortgage payments. Meet this expanded requirement.

6. Weigh mortgage insurance costs – Consider the impact of required mortgage insurance premiums when budgeting for two FHA loan payments.

7. Check occupancy rules – For any second loan exception, the home you finance must be your primary residence, not a rental or investment property.

It can be challenging to meet all the requirements. Work closely with your lender and real estate agent to pursue a second FHA loan successfully.

Alternatives if You Can’t Get Approved for Two FHA Loans

If you don’t qualify for concurrent FHA loans, you still have options:

• Wait to apply – Pay off your initial FHA loan first before pursuing a second one. This avoids carrying two mortgage payments.

• Sell your property – Sell your current home and use sale proceeds to pay off the old FHA loan so you can apply for a new one.

• Pursue a different loan type – Consider a conventional, VA, or USDA loan for your second home instead of another FHA loan.

• Take out a home equity loan – If you have sufficient equity, tap it to get cash for a second home rather than a whole new FHA mortgage.

• Rent out extra space – As an alternative to buying a larger home, rent out finished basement areas or add rental apartments to your current property for extra income.

Getting approved for two FHA loans is rare. But in certain cases, it is possible if you fully understand the requirements.

Tips for Getting a Second FHA Home Loan

If you do qualify for two FHA mortgages, here are some tips to make the process smoother:

• Contact lenders that have experience with multiple FHA loans – not all lenders will do them.

• Be conservative when calculating your expenses, income, and debt obligations. Don’t overestimate your figures.

• Begin consulting with lenders and your real estate agent early once you know you need a second home.

• Make sure both homes you select are affordable and meet FHA appraisal guidelines.

• Retain an experienced real estate attorney to assist with the additional documentation and specialized lending situation.

• Be prepared to pay higher closing costs and mortgage insurance premiums on two loans rather than one.

• Calculate whether carrying two mortgage payments will still fit your budget long-term, not just initially.

With proper planning and advice, getting a second FHA loan is possible. But also know when alternatives like waiting or choosing a different loan product make more sense for your situation.

Frequently Asked Questions About Second FHA Loans

Many borrowers have additional questions about getting approved for a second FHA-insured mortgage. Here are some commonly asked questions:

Can I get a second FHA loan to buy an investment property or vacation home?

No, any subsequent FHA loans must also be used to purchase your primary residence, not investment properties or second homes.

How long do I have to wait after getting my first FHA loan?