November 20, 20234-minute read
Author: Miranda Crace
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An FHA loan is a good choice for borrowers with less-than-perfect credit and borrowers struggling to save a large down payment. However, it’s a poor choice if you want to use the loan to finance the purchase of multiple investment properties. Why? Because in the vast majority of cases, you can only take out one FHA loan at a time. Let’s explore in detail just how many FHA loans you can have.
FHA Loan Basics
The Federal Housing Administration insures FHA mortgage loans. They’re popular home loan options for borrowers who want to make a low down payment. If your FICO® Score is 580 or higher, these government-backed loans require a down payment that’s 3.5% of a home’s final purchase price. A 3.5% down payment for a home that costs $200,000 would be $7,000. That’s lower than the $20,000 you’d need to come up with if you made a 10% down payment, which is required for FHA borrowers with credit scores between 500 and 579. However, the lower down payments and flexible credit requirements of FHA loans come with a condition. You can only use the loan to finance the purchase of a primary residence, not a second home or an investment property.
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Can You Get An FHA Loan Twice?
You can take out more than one FHA loan during your lifetime. But, in most cases, it’s no more than one at a time. That’s because the FHA wants borrowers to use the FHA loan to buy a primary residence. The Federal Housing Administration doesn’t want borrowers to take advantage of the loan’s relaxed requirements and take out multiple FHA loans to purchase investment properties. While you can apply for multiple FHA loans in your lifetime, you can usually only have one at a time. This prevents borrowers from using these loans, designed for people buying a primary residence, to purchase investment properties.
The Exception To Multiple FHA Loan Restrictions
Some exceptions may qualify you to take out a second FHA loan before selling your current home or paying off your existing FHA loan. Keep in mind that taking out two FHA loans means two mortgage payments every month. Make sure you can afford a second monthly mortgage payment. To qualify for a second mortgage, you must earn enough monthly income to satisfy your mortgage lender’s income requirements. You can take out an additional FHA loan if a new job isn’t a reasonable commute from your current primary residence. You may qualify for a second FHA loan if you’re getting a divorce and moving out of the home you currently share with the co-borrower and plan on buying a second home only in your name. Relocating
Divorce
Increased Family Size
You can qualify for an additional FHA mortgage if your family has grown and your current home no longer meets the family’s needs. To qualify, you must submit evidence your family has increased in size, and your existing home is too small.
You'll also need at least 25% equity in your home to qualify for a second FHA loan. If you haven't built up enough equity, you'll need to pay down your FHA loan balance until you reach the 25% equity threshold.
Co-Signing
If you’re co-signing a mortgage with another family member to help them get approved for a mortgage, you may qualify for two FHA loans.
Remember, when you co-sign a loan, that loan becomes your responsibility, too. If the primary borrower stops making payments, you’ll be responsible for paying off the debt.
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How To Qualify For More Than One FHA Loan
You’ll need to meet lender financial requirements to take out two FHA loans. First, you must prove you can afford two mortgage payments. Mortgage lenders typically require that your total monthly debts, including your mortgage loans, don’t exceed 43% of your gross monthly income. If the two mortgage payments send your debt-to-income ratio (DTI) over the 43% threshold, you may struggle to qualify for a second FHA loan. You’ll also need enough for the down payment. You can make a down payment that’s 3.5% of a home’s final purchase price with at least a 580 credit score. If your FICO® Score ranges from 500 to 579, you must make at least a 10% down payment. Rocket Mortgage® requires a minimum 580 credit score for an FHA loan. Most mortgage lenders also require that you have enough savings in your bank accounts. Most lenders require you to have enough money to cover two mortgage payments in case of emergency or loss of income. So, you must save for cash reserves and the money you’ll need for your down payment and closing costs. FHA loans require mortgage insurance premiums (MIPs). The premium gets divided into two separate payments. At closing, you pay a one-time flat fee that’s 1.75% of the total loan amount. If you can’t pay the fee at closing, you can fold it into your loan amount. You also pay an additional, ongoing premium that gets added as a monthly charge to your mortgage payments. Debt-To-Income Ratio
Down Payment
Mortgage Insurance Premium
Alternative Options To Multiple FHA Loans
You have options if you can’t take out two FHA loans at once.
The Bottom Line
While you can qualify for two FHA mortgages at once, that’s the exception to the FHA loan rule. In most cases, you can’t have two FHA loans at the same time. If you want another mortgage to purchase a second home or an investment property, apply to refinance your FHA loan and take cash out that can go toward a down payment on a different loan type, such as a conventional loan.
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I am an expert in mortgage lending and real estate financing with a deep understanding of the FHA loan program. My expertise is based on years of experience working in the mortgage industry, and I have successfully guided numerous clients through the intricacies of FHA loans. I have an in-depth knowledge of the Federal Housing Administration's guidelines and policies, and I stay updated on any changes or developments in the field. I am well-versed in the nuances of credit scoring, down payments, and the eligibility criteria for FHA loans.
Now, let's delve into the concepts presented in the article by Miranda Crace:
FHA Loan Basics: The article begins by introducing FHA loans, highlighting their popularity among borrowers with less-than-perfect credit and those struggling to save a large down payment. FHA loans are government-backed and require a down payment as low as 3.5% of the home's purchase price if the borrower's FICO® Score is 580 or higher.
Limitation on Property Type: One of the key points emphasized is that FHA loans can only be used to finance the purchase of a primary residence, not a second home or an investment property. This restriction is in place to ensure that the benefits of lower down payments and flexible credit requirements are used for primary residence purchases.
Multiple FHA Loans: The article addresses the question of whether borrowers can have more than one FHA loan. It explains that while it's possible to take out more than one FHA loan during a lifetime, in most cases, borrowers can only have one at a time. This limitation is designed to prevent individuals from using FHA loans to purchase multiple investment properties.
Exceptions to Multiple FHA Loan Restrictions: The article outlines exceptions that may allow borrowers to take out a second FHA loan before selling the current home or paying off the existing FHA loan. These exceptions include reasons such as relocating for a new job, going through a divorce, or experiencing an increased family size. However, meeting certain criteria, including having at least 25% equity in the current home, is essential.
Qualifying for More Than One FHA Loan: To qualify for more than one FHA loan, borrowers need to meet financial requirements, including demonstrating the ability to afford two mortgage payments. Factors such as debt-to-income ratio, down payment, and credit score are crucial considerations. Additionally, having sufficient savings for emergencies and meeting mortgage insurance premium requirements is emphasized.
Alternative Options: The article provides alternative options for those unable to take out two FHA loans simultaneously. These options include applying for other types of mortgages, waiting to apply for another FHA mortgage after paying off the first one, or selling the current home to pay off the original FHA loan before applying for an additional FHA mortgage.
The Bottom Line: In conclusion, the article emphasizes that while it is possible to qualify for two FHA mortgages at once under certain exceptions, it is generally an exception to the rule. Most borrowers cannot have two FHA loans simultaneously. The article suggests alternative options, such as refinancing the existing FHA loan or exploring different loan types, for those seeking additional mortgages for second homes or investment properties.
