Using An FHA Loan For A New Primary Residence

FHA loans are a popular option for home buyers looking to purchase a home with a low down payment and more lenient financing terms. While you’re typically only allowed one FHA insured property at a time, there are circumstances when a borrower can qualify for another FHA loan for a new primary residence without selling their existing home or paying off the home’s FHA mortgage.

If you’ve recently experienced a lot of change, read on to see if any of these unique circumstances apply to you.

What Is An FHA Loan?

An FHA loan is a mortgage backed by the Federal Housing Administration (FHA). FHA loans offer more lenient requirements for borrowers because the federal government promises to protect a lender's investment in case of default. These lower requirements make them an enticing option for first-time home buyers with lower credit scores, higher debt to income ratios or only a small amount saved for a down payment.

Can I Get Another FHA Loan For A New Primary Residence?

Yes, you can get another FHA loan for a new primary residence without selling your existing FHA-insured property or paying off the FHA loan. First, you’ll need to make sure you meet the lender’s minimum requirements.

Requirements For An FHA Loan On A Second Home

• Credit score: While the minimum credit score for your specific loan will depend on the down payment, the FHA will not provide financing to any borrower with a credit score below 500.
• Down payment: The minimum down payment for an FHA mortgage is 3.5%.
• Mortgage insurance premium: All FHA loans require you to pay an upfront and monthly mortgage insurance premium (MIP). These payments are like private mortgage insurance. Upfront MIP is 1.75% of the loan amount, which can be financed into the loan if you cannot pay it at closing. Monthly MIP payments depend on your specific loan terms but usually cost 0.15% – 0.75% of the loan amount.

Reasons To Get An FHA Loan For A New Primary Residence Without Paying Off The Previous FHA Loan

If you already have an FHA loan on your current residence, the FHA allows you to obtain an additional loan if you’re experiencing one of the following life events.

1. Job Relocation

You may be eligible for an additional FHA loan if you must relocate to an area more than 100 miles away from your current residence for an employment-related reason. You are able to rent out your previous primary residence once approved.

2. A Growing Family

If you've had more children and your current home no longer meets the needs of your growing family, you may qualify for an additional FHA loan. This situation requires that the Loan to Value (LTV) ratio on your current home be 75% or less or paid down to that amount before purchasing the second home. The value of the home is verified by your lender and you’ll need to provide documentation of your growing family. On the upside, you can rent out your first home in this situation.

3. Leaving A Jointly Owned Property

Let's say you and your partner co-borrowed a home using an FHA loan. If your relationship ends and one of you moves out of the original house with no intent to return, you may apply for an FHA loan for a second home even though your name is still on the first mortgage. While divorce is the most common reason for this situation, proof of a relationship ending is not required.

4. You're A Non-Occupying Co-Borrower

You can get another FHA home loan even if you’re a co-signer on someone else’s FHA loan. When you’re a co-signer and you do not live in the home, you’re considered a non-occupying co-borrower.

FHA Loan For Second Home FAQs

Here are a few frequently asked questions about obtaining an FHA loan for a second home.

Can I have more than one FHA loan?

FHA loans are typically used for primary residences only. Still, some situations mentioned above allow you to have more than one FHA loan at a time. All four reasons above will enable you to have more than one FHA loan at a time.

What are the alternatives to an FHA loan for a second home?

If you don’t meet the requirements for a second FHA loan and you do not plan to sell your current FHA-insured property, a conventional loan may be your best option. While you may have stricter financing requirements, such as a down payment of 20% or more, you will have fewer restrictions based on your living situation.

The Bottom Line

If you're relocating for work, growing your family, leaving a co-borrower or signing your own FHA loan after being a non-occupying FHA loan co-signer, you may qualify for a second FHA loan. Remember that many of these circumstances require documentation to verify them, so do your best to track down important related documents and stay organized.

If you're ready to get started in your home buying journey, connect with a Rocket Homes^SM Verified Partner Agent today!