How To Have Multiple FHA Loans At Once?

An FHA loan is a suitable option for borrowers with imperfect credit or those finding it challenging to save up for a substantial down payment. Yet, it may not be the best route if your goal is to use the loan for acquiring multiple investment properties.

The reason being, in most instances, you are typically limited to obtaining just one FHA loan simultaneously. Delving deeper, let’s examine the specifics of how many FHA loans you can have.

Basics of FHA Loans

The Federal Housing Administration backs FHA mortgage loans, a popular choice for borrowers seeking a low down payment option. For those with a FICO® Score of 580 or higher, these loans call for a down payment of 3.5% of the home’s purchase price.

To illustrate, a $200,000 home would require a $7,000 down payment, notably less than the $20,000 needed for a 10% down payment, mandated for FHA borrowers with credit scores between 500 and 579.

Yet, the accessibility of FHA loans, with their lower down payments and flexible credit criteria, is balanced by a restriction. These loans can only fund the purchase of a primary residence and cannot be used for acquiring a second home or investment property.

Is it possible to secure an FHA loan more than once?

You are allowed to take out multiple FHA loans in your lifetime, but usually only one at a time. The reasoning behind this is that the FHA encourages borrowers to utilize the loan for purchasing a primary residence. The Federal Housing Administration aims to prevent borrowers from exploiting the loan’s lenient criteria by acquiring multiple FHA loans for investment properties.

Though you can apply for multiple FHA loans in your lifetime, you are typically limited to holding just one at a time. This restriction aims to deter borrowers from utilizing these loans, intended for primary residence purchases, for acquiring investment properties.

4 Exceptions To The Rule: Multiple FHA Loans 

Certain circumstances might allow you to secure a second FHA loan before selling your current home or repaying the existing one. Remember, having two FHA loans translates to two monthly mortgage payments. Ensure you have the financial capacity for an additional monthly mortgage obligation. To be eligible for a second mortgage, your monthly income must meet your lender’s income criteria.

Relocation

If your new job is not within a reasonable commuting distance from your current primary residence, you may consider applying for an additional FHA loan.

Divorce

If you’re going through a divorce and moving out of your current home shared with a co-borrower, you might be eligible for a second FHA loan when purchasing a new home solely in your name.

Increase In Family Size

If your family has expanded and your current home no longer fits your needs, you may qualify for an additional FHA mortgage. To be eligible, you must provide proof of your family’s growth and that your current home is too small.

Moreover, having a minimum of 25% equity in your home is necessary to qualify for a second FHA loan. If you lack sufficient equity, you’ll need to reduce your FHA loan balance until you meet the 25% equity requirement.

Co-Signing

If you co-sign a mortgage to help a family member get approved, you could qualify for two FHA loans. Remember, when you co-sign, you take on the loan responsibility. If the primary borrower struggles with payments, the duty to settle the debt rests on you.

Qualifying for Multiple FHA Loans

Meeting the financial criteria set by lenders is necessary to qualify for two FHA loans.

Debt-To-Income Ratio

To qualify for a second FHA loan, demonstrating the ability to manage two mortgage payments is crucial. Mortgage providers usually mandate that your combined monthly debts, encompassing mortgage repayments, remain below 43% of your gross income. If the two mortgage payments tip your debt-to-income ratio above this 43% limit, securing another FHA loan might pose a challenge.

Down Payment

To ensure you’re ready, you should have funds available for the down payment. Typically, a down payment of 3.5% of the home’s purchase price is feasible with a credit score of at least 580. However, if your FICO® Score falls between 500 and 579, a 10% down payment is necessary. Beyond this, most mortgage providers require sufficient funds in your accounts. They usually mandate savings equivalent to two mortgage payments to prepare for unforeseen situations like emergencies or income loss. Therefore, it’s crucial to save for cash reserves, as well as the amount needed for the down payment and closing expenses.

Mortgage Insurance Premium

FHA loans necessitate mortgage insurance premiums (MIPs), which are split into two payments. Initially, a one-time flat fee of 1.75% of the total loan amount is due at closing. If payment is not feasible then, the fee can be rolled into the loan amount. Additionally, an ongoing premium is incurred, added as a monthly charge to your mortgage payments.

Exploring Alternatives to Having Multiple FHA Loans

If you’re unable to secure two FHA loans simultaneously, there are alternative options available to you.

• Consider applying for a different mortgage option, like a conventional loan. Your new lender might not approve your application if having two mortgage payments pushes your debt-to-income ratio above 43%.
• Delay applying for another FHA mortgage until you’ve settled your initial FHA loan. By clearing your first FHA loan while retaining ownership of your home, you enhance your chances of meeting the criteria for a new FHA loan. This approach alleviates the burden of managing two monthly mortgage payments.
• Sell your current home to utilize the proceeds for settling your initial FHA loan prior to seeking another FHA mortgage.

Key Takeaway

Although it is possible to qualify for two FHA mortgages simultaneously, this scenario remains the exception rather than the norm according to FHA loan regulations. Typically, individuals are unable to hold two FHA loans concurrently. If the intention is to acquire a second home or investment property through an additional mortgage, the recommended approach involves applying for refinancing of the existing FHA loan. By leveraging refinancing, one can access cash that may be utilized as a down payment for an alternative loan category, such as a conventional loan.