Recently I had a client who was unsure where she was going to live long-term. She considered buying a duplex in her current town, then buying again in a year if she decided to move. She needed to know if she could use an FHA loan twice.
The question came up: can you have 2 FHA loans at once? How many FHA loans can you have?
How to get 2 FHA loans
First, it’s important to remember that, in general, you can only have one FHA loan. However, the following four situations are exceptions that are acceptable by FHA.
1. Relocation (100 mile rule)
If you have to move for work or other legitimate reason, you can get a second FHA loan. The lender will allow you to buy with FHA without selling your current home.
Your new primary residence must be at least 100 miles from the current home.
For example, you have an FHA loan on your home in Denver, Colorado. You relocate for work to Albuquerque, New Mexico over 400 miles away. You can get another FHA loan,
However, if you moved to Colorado Springs, just 70 miles away, you could not get another FHA loan without selling the current residence. You could try for a conventional loan or another loan type.
2. Increase in family size
In some cases, families who have outgrown their current residence can get another FHA loan without moving 100 miles away. You must have more legal dependents than you had when you purchased the home.
For instance, you purchased a 2-bedroom house when you had one child. You had another biological child and adopted another. You could make the case that a family of five is too large for a 2-bedroom.
However, not everyone will be eligible. The current home must have 25% equity, meaning the current FHA loan is only 75% of the home’s current value. You must prove the home’s value with a new appraisal.
Because most people put just 3.5% down for FHA, it’s unlikely that they would have 25% equity unless they have been there for a long time.
3. One borrower permanently moves out
If two people, such as husband and wife, purchase a home together then get divorced, the vacating spouse can use FHA to purchase another home.
The situation doesn’t have to involve divorce. If a boyfriend and girlfriend or even two friends buy a home together, one can move out permanently and use FHA to buy again.
4. Non-occupying co-borrowers
If you helped someone purchase a home as a non-occupying co-borrower, you can purchase your own house that you will live in with FHA.
Additionally, you can be a non-occupying co-borrower for someone else even if you have an FHA loan currently.
Keep in mind that for both circumstances, you have to qualify for the new loan considering the current FHA loan payment.
Can you have more than 2 FHA loans?
In theory, you could have more than two FHA loans. If you keep relocating more than 100 miles away, you could keep buying homes using FHA.
Eventually, though, it will be hard to qualify for a new loan. You can’t always use rental income from your former residence to qualify for the new house.
But if your income is high enough, you could technically have three or more FHA loans.
However, if it appears you’re using FHA to amass rental property, the underwriter can deny the loan. If you show a pattern of moving over 100 miles away every couple years, buying a house with FHA every time, expect more scrutiny from the lender.
Alternatives to getting 2 FHA loans
If your scenario doesn’t match FHA guidelines, you still have options.
Buy the new home with a conventional loan: You can have as many mortgages as you’d like, as long as they are not FHA. You could purchase the new home with a conventional, non-QM, VA, or another type of loan.
Refinance the current home to a conventional loan: You could refinance the current home into another loan type such as a conventional loan. Then you could keep the house and buy again with FHA regardless of location.
Sell the current home: If you’re out of options, you could sell the home, paying off the existing FHA loan. Then there would be no restrictions on buying again with FHA.
Know your options
If you’re looking at a tough scenario, there are plenty of creative financing options out there. Know all your options before giving up on your ideal financing structure.