May 14, 2019
Not all borrowers are first-time home buyers; some who seek to buy a home with an FHA mortgage loan already own property and seek to own again. FHA home loan rules do not single out first-time home buyers, though the program is ideal for anyone who needs a lower down payment and more forgiving credit requirements.
Those who have purchased a second home, whether or not they were using an FHA mortgage for that purchase, will likely want to consider refinancing at some point. This makes sense as most homeowners will consider a refi loan for one reason or another.
How does the owner of a second home get an FHA refinance loan?
Much depends on the type of loan you need; cash-out refinancing, a refinance loan to improve the property (known as an FHA Rehab loan or an FHA 203(k) refinance loan), or a loan to lower monthly payments or interest rates.
But the bottom line is, for all refinance loan transactions you should prepare your credit and lower your debt ratios the same way you would if you were applying for a new purchase loan. You will need to apply using application data similar to the kind you submitted for the original mortgage. An appraisal will be required in most cases to establish the current fair market value of the property.
The one exception is for FHA-to-FHA Streamline Refinances, which have no FHA required credit check or appraisal. Your lender may, depending on circumstances, require one or both regardless in which case you WILL need to prepare your credit as mentioned above.
Refinance loans are a major line of credit, so it’s no surprise that you’ll be subject to the credit approval process again, but there is one extremely important factor about refinancing a second home that all such borrowers need to know about FHA home loans.
If you refinance your second home with any FHA mortgage, you are required to occupy that property as the primary residence as a condition of loan approval.
So if you seek to refinance a home that you are currently using as a vacation home, a rental property, or other non-primary residence for at least one borrower obligated on the mortgage, the FHA home loan would not be approved unless you agree to the FHA loan occupancy requirement.
FHA home loans cannot be used for properties you don’t intend to live in as your main residence. No time shares, vacation properties, bed-and-breakfasts, condohotels, or other commercial properties are allowed to be refinanced with an FHA single-family refi loan.
If you aren’t sure about how FHA loan occupancy rules apply to your transaction, ask your loan officer.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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