More on FHA Loans for More Than One Home

April 7, 2011

In recent posts, we’ve discussed the FHA rules for borrowers who want to apply for a second FHA insured loan in addition to the one they already hold. Generally speaking, the FHA does not allow people to have two FHA home loans at the same time, but there is a degree of flexibility in the rules–borrowers who want to buy a second home with an FHA mortgage are only allowed to do so under specific circumstances.

For example, someone who relocates to a new area that is not within a reasonable commuting distance from the first home may be allowed to apply for an FHA loan to purchase a second property. The same is true when a home owner outgrows the first home because it no longer has room for all the occupants.

In these cases the FHA determines the borrower’s eligibility to apply for the new loan based on the specific circumstances, but these exceptions do provide flexibility for those who can afford the second FHA loan payment.

There are other exceptions. An FHA borrower who vacates a home that will still be occupied by a co-borrower may be eligible to apply for another FHA mortgage. This is an important factor in divorce cases and other situations where a borrower might not be liable for the entire amount of the FHA mortgage, needs to relocate, and requires a new home with an FHA guaranteed loan.

Similar rules apply to non-occupying co-borrowers. Anyone who co-signs on an FHA mortgage who doesn’t live on the property is permitted to apply for their own FHA home loan. According to FHA rules, “…a non-occupying co-borrower on property being purchased with an FHA-insured mortgage as a principal residence by other family members may have a joint interest in that property as well as in a principal residence of their own with a FHA-insured mortgage.”

In all of this the borrower should keep one important FHA rule in mind. “Under no circumstances may investors use the exceptions…to circumvent FHA’s ban on loans to private investors and acquire rental properties.” Borrowers cannot purchase principal residences and convert them into investment properties. The FHA rulebook also says these exceptions are viewed on a case-by case basis.

“Considerations in determining the eligibility of a borrower for one of these exceptions are the length of time the previous property was owned by the borrower and the circumstances that compel the borrower to purchase another residence with an FHA-insured mortgage. In all other cases, the purchasing borrower either must pay off the FHA-insured mortgage on the previous residence or terminate ownership of that property before acquiring another FHA-insured mortgage.”

By Joe Wallace

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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