FHA loans — or mortgages guaranteed by the Federal Housing Administration — are a great choice for first-time homebuyers. Low interest rates, loose credit requirements, and small down payment options make them a good choice for many consumers looking to buy a house.
But for those looking to buy multiple properties, they may not be the best fit, as you can typically only have one FHA loan at a time.
Are you preparing to buy a home? Here’s what to know about FHA loans and their limitations.
Can you have two FHA loans at once?
Generally speaking, you can only have one FHA loan at a time because FHA loans are designed to make homeownership more affordable, and they’re specifically for primary residences — not investment properties or homes you aim to rent out.
However, there are some exceptions to this rule that we’ll go into more depth below.
Exceptions For Two FHA Loans at Once
A few scenarios exist in which you can have two FHA loans at the same time.
These exceptions include when:
1. There’s a change in family size: If your family grows significantly, you may be allowed to take on a second FHA loan to purchase a larger property. However, you must submit evidence that your legal dependents have increased and your current home no longer meets your needs to qualify for this exemption.
2. You’re a co-signer/co-borrower: If you already have an FHA
loan but need to co-sign a new FHA loan for a family member or friend (to help
them qualify), you typically can. This also works in reverse (if you co-sign a
loan and then want to get your own loan on a house later).
3. You’re divorcing: If you’re getting a divorce and your
former spouse will keep your current, FHA-financed home that you co-borrowed
together, you might be able to get a second FHA loan to purchase a new property.
If they didn’t co-borrow the loan with you, you could into FHA loan
assumption as an option.
4. You’re relocating: If your job requires you to relocate more than 100 miles away from your current home, you may be able to get a second FHA loan to purchase a property in your new job location.
Always talk to a knowledgeable loan expert if you’re unsure if an FHA loan is
possible. They can walk you through all your available options.
What is the FHA 100-mile rule?
The FHA has a “100-mile” rule that applies to borrowers who are relocating for their jobs. Under it, existing FHA borrowers can apply for a second FHA loan if their job takes them more than 100 miles from their current FHA-financed home.
This rule keeps borrowers from having to sell their previous home before buying a new one at their new location.
How Multiple FHA Loans Work
If you’re eligible for a potential exception and need to get a second FHA loan, you need to prove to lenders that you have the financial capabilities to handle both loans simultaneously, so your debt-to-income ratio (DTI) — including both loan payments — would need to be within an acceptable range, preferably 43% or less.
“If you co-borrowed your current FHA loan and there is documentation of the co-borrower making the mortgage payments for the past 12 months, then you can omit the existing mortgage payment and you will only need to prove your financial ability to pay the new loan.” -Emily Kittle
You also need to meet credit score and down payment requirements and have enough savings to cover both payments for several months in case of an emergency. Lenders will also ask you to provide financial documents showing your income, assets, debt obligations, and more — the same documents required when applying for your first loan.
Keep in mind that FHA loans always require mortgage insurance, and you’ll need it on both loans — not just one. FHA mortgage insurance costs 1.75% of the loan amount upfront and then an additional amount based on your down payment and loan balance each month.
Alternatives to Two FHA Loans at Once
A second FHA loan isn’t your only option if you need to buy another property and retain your old one.
You can also explore these alternatives:
- Refinance your FHA loan into a conventional one: By doing
this, you no longer have to meet one of the specific exemptions to get another
FHA loan. You might also eliminate your mortgage insurance with the refinance,
which, unlike conventional loans, is typically required for the life of the
loan.
- Opt for a conventional loan: Instead of another FHA loan,
you can look at conventional mortgages. Fannie Mae and Freddie Mac guarantee
many of these and require just 3% down. Just note that these require higher
credit scores than FHA loans.
- Try a VA or USDA loan: You could use other
government-backed loan options for your purchase. VA loans are for military
members and Veterans, and USDA loans are used on properties in qualifying rural
and suburban areas. See this USDA
eligibility map to learn more.
Are you considering an FHA loan for your home purchase? Reach out to a loan expert to check your eligibility today!
Emily Kittle is an experienced underwriter with a strong background in risk assessment, training, and loan decision-making. She excels at solving complex mortgage challenges and guiding loans to closing using creativity and critical thinking.
