Can I get an FHA Loan for a Second Home?
FHA loans guidelines are very strict when it comes to the area of occupancy. The guideline state that an FHA loan is intended to be for your primary residence only. However, there are ways to purchase a second home with an FHA loan.
Can I get an FHA Loan for a Second Home?
Although the FHA guidelines specify that an FHA loan can only be used for a primary residence, there are ways to get around this rule and finance a second home with an FHA Loan.
First, we need to define what we mean by “second home”. The answer to your question will likely be different depending upon what your intent was too.
- There is a second home, meaning a new home that you plan to make your primary residence while still maintaining an FHA mortgage on your first home.
- Then, there is a second home that you plan to buy and rent as an investment.
- Finally, there is a second home as in vacation home where you do not intend to occupy this as your primary residence or a rental
FHA guidelines do not permit the funding of an FHA loan for an investment property or a vacation home. Here are some of the exceptions and ways to get an FHA loan.
Ways You Can Get an FHA Loan for a Second Home
First, know that the FHA forbids having two mortgages with active FHA mortgage insurance at the same time except under certain circumstances.
You may be able to finance a second home with an FHA loan if you relocate of find a new job that is at an inconvenient distance for commuting purposes. The FHA guidelines use 100 miles at the minimum distance but if your commute is shorter than that but other factors such as intense traffic make it difficult, you may get approved.
If you can get an exception to have a second FHA approved while maintaining your current home, you may rent out the existing home. There is also no expectation that you must return to the first home at any time. Even if you relocate back to the area where your first home is, you can still buy another home but quite possibly not with an FHA loan.
Family is Growing and You Need a Larger Home
If you have out-grown your current residence and need something larger, then you can get approval for a second FHA insured loan. You may need to document the additional family members and detail how the size of your current home is not sufficient.
If you can get approved for this FHA family size exception, they will require that your current FHA mortgage be paid down to 75% of the home value before approving your new loan.
Borrower Vacating a Jointly Owned Property
If one of the co-borrowers on the current primary residence decides he or she wants to move out and get a place of their own, then that person can get a second FHA insured mortgage on the new home.
There are a couple of scenarios where this may occur:
- Original home was purchased with a spouse and due to divorce, one spouse will be moving out and needs an FHA loan on the new home. In this scenario, this person’s name will also still be on the first mortgage.
- Original home was purchased with a family member or a friend and now one would like to move out and get their own home.
Non-Occupying co-Signer for an FHA Home
If you co-signed for someone’s FHA insured home and never lived there, you can qualify for another FHA mortgage for your primary residence. This does not occur often but good to know this option exists for you.
FHA Loans for Second Homes Can be Approved Based Upon the Following Conditions:
- The home cannot be the third FHA insured property
- The home cannot be used primarily as a vacation home
- The maximum amount you can finance is 85% of the appraised value or purchase price – whichever is lower. This should create pause as to whether an FHA loan truly is the right thing for you in this scenario.
How to Qualify for an FHA Loan for a Second Home
Now that you understand how you can be approved to purchase a second home with an FHA loan, you still need to qualify. The qualification process is exactly the same as it was when you were purchasing your first home with two exceptions:
- You will likely have to put 15% down on the new home
- You need to qualify with both mortgages counting against you in your debt to income ratios (DTI). If you have a lease agreement to rent out the first home, then the expected rental income can benefit you.
It is good to know there are ways to finance a second home with an FHA loan. Pay close attention to the guidelines and requirements before making your final decision. In a situation like this, it is important to work with a lender who knows how to submit your exception request in a way so it can be approved. Let us help you to get connected with a reputable FHA lender who can worth with you during this process.
Can I get an FHA loan for an investment property?
If your intent is to purchase an investment property and finance it with an FHA loan, then this cannot be approved. However, the home you are vacating can be held onto as an investment property even if it still has an FHA loan (from when you originally purchased it as your primary residence).
Can you buy a second home with no down payment?
It will be difficult to find a second home with no down payment especially if you are trying to finance the home with an FHA home loan.
Does FHA have a distance requirement when having two FHA loans at the same time?
FHA guidelines require the new home to be at least 100 miles from the current home if you plan to keep two FHA loans open at the same time. Although there are exceptions, the 100 mile requirement will likely be enforced. Read more about the FHA 100 mile rule.