Government-backed mortgages help make homeownership possible for millions of Americans. Federal Housing Administration loans, or FHA loans as they’re more commonly known, are a popular choice for many buyers, thanks for their forgiving debt-to-income ratios and down payment requirements. In fact, according to the National Council of State Housing Agencies, 1.3 million FHA loans were issued in 2020 — more than 80% of which were for first-time home buyers.
But what about second-time home buyers? What about people who are looking to expand their real estate portfolio? And just how many FHA loans can one have? We’ve got all of these answers and more useful tidbits on FHA loans below. Let’s get into it.
Can I get an FHA loan more than once?
When it comes to a lifetime allotment of FHA loans, we’ve got good news: The limit does not exist. Simply put, you can apply for and receive multiple FHA loans throughout your lifetime.
However, carrying more than one FHA loan at a time? The rules advise against that.
Of course, this rule makes sense when you remember that FHA loans are intended for home buyers who are looking for a primary residence — not a vacation home or rental property. So, generally speaking, if you want a second FHA loan, you’ll need to pay off the first one.
Rules can be flexible though, and exceptions may apply to that rule if you meet specific criteria, such as:
- Your new home is more than 100 miles from your current home. Ever heard of the 100-mile rule? You may be able to qualify for a second FHA loan if a new work opportunity requires you to move at least 100 miles away from your current one, for example..
- Your family has grown significantly since you bought your home. There’s only so far you can plan ahead because life can be unpredictable. If your two-bedroom home becomes too small as you grow into a family of five or six, then you may have a case to qualify for another FHA loan.
- You’re a co-borrower on an FHA loan, but you want to buy your own property. Things change. Plans change. Perhaps you’re going through a divorce and are on the market, or maybe you bought a home with friends and have realized you need more personal space. In cases like these, you may qualify for a second FHA loan.
- You’re buying a HUD real-estate owned (REO) property. In this instance, if you’re looking to invest in an FHA-foreclosed home, you’ll need to put down at least 25% — which may counteract one of the main benefits of an FHA loan: Lower down payment requirements.
How can I qualify for multiple FHA loans?
Understandably, your mortgage lender will want to know that you can afford to repay more than one home loan at a time.
Like you did for your first FHA loan, you’ll need to meet the minimum credit score, debt-to-income ratio, and down payment requirements to qualify. On top of that, your lender will check your income and assets to make sure you’ve got the funds to back the buy. You’ll also need to be clear of any foreclosures for at least three years to qualify for another FHA loan.
Depending on your credit score, you could put down as little as 3.5%. Keep in mind, you’ll need to pay mortgage insurance (MIP, or your mortgage insurance premium) throughout the life of each of your FHA loans. Unlike other loans, which offer the ability to remove mortgage insurance after meeting certain requirements, FHA MIP stays with you for the life of the loan unless you refinance into something like a Conventional loan.
If the reason for your second FHA loan is to accommodate your growing family, you’ll need to provide evidence that your current home doesn’t meet your needs anymore. In this case, you’ll need to have at least 25% equity in your current home to be eligible for a second FHA loan. If not, you’ll either have to pay the principal balance down further, or use other loan financing.
What are the alternatives?
If you don’t want to hold two FHA loans at the same time, there are other options to consider. You could:
- Sell your current home
- Refinance your current home to a Conventional loan
- Rent or lease a new home until your current home sells
- Buy a new home with another loan type
Pro tip: If you need flexible qualification standards, a USDA loan can get you in a home in a rural area with no down payment requirement.
So, what’s next?
FHA loans are an incredible option for home financing, whether you’re looking to buy or even refinance your current loan. FHA loans are especially popular with first-time home buyers because of their flexible credit, income, and down payment requirements. If you’re interested in learning more about FHA loans, contact us today to chat with one of our experts.
You can get multiple FHA loans throughout your life. However, the general rule is that you can only have one FHA loan at a time.