This guide at Gustan Cho Associates will cover having multiple FHA loans simultaneously. For homebuyers, owning a home can seem discouraging, particularly regarding financing. This is where an FHA loan comes in. It is a government-backed loan program designed to make homeownership more attainable by offering a low down payment requirement. John Strange of Gustan Cho Associates explains FHA loans:
With an FHA loan, borrowers can finance up to 96.5 percent of the home’s value, making it a popular option for those who need more funds for a traditional down payment. It is important to note that the FHA loan is meant only for owner-occupant primary residence homeowners, not real estate investors.
The primary owner-occupant rule on FHA loans discourages investors from buying multiple homes through FHA lenders and taking advantage of the low down payment – as little as 3.5% – compared to the higher down payment required for investment property purchases. The FHA loan was intended to help ordinary people buy homes, and using it to build an investment portfolio could negatively impact that goal.
Reasons Why You Can Have Multiple FHA Loans
But there are a few situations where you can have two FHA loans simultaneously. Here are some reasons you may be eligible. You are relocating for new employment. If you’re relocating to a different state for a new job opportunity and haven’t been able to sell your current home, you may still be eligible for a second FHA loan if you plan to buy a new home more than 100 miles away current FHA home. This option can benefit you in a hot housing market where properties sell quickly.
Multiple FHA Loans Due To Growing Family
There is a need for a bigger home for a growing family: If you need a bigger one, you’ll need to prove you have at least 25% equity to avail of a second loan for an increase in your family number. That means you have to pay the mortgage balance down to 75% of
the value of your home, or choose a different loan type, like a conventional loan.
Multiple FHA Loans Guidelines Due To Being a Co-Borrower
Cosigning an FHA loan: If you want to co-sign a new FHA loan without being a co-borrower, you can do so by signing the mortgage note but not taking the title. If you have a current FHA loan and are interested in becoming a co-borrower on a new FHA loan, you may be required to give at least a 25% down payment. Amanda Witthauer of Gustan Cho Associates explains having multiple FHA loans at the same time due to divorce:
You are getting a divorce, and your spouse will be in the current home: If you’re divorced, and your house is awarded to your spouse, you may still qualify for a second FHA loan to purchase another home.
Co-borrowed for someone else’s FHA loan but want to buy your home now. If you were a co-borrower for another person’s FHA loan but now want to buy a home independently, you may qualify for a second FHA loan. However, you’ll need to be eligible for your new loan with the other payment counted against you unless you can prove that the payments were made by the person you co-signed with.
Multiple FHA Loans on HUD-Owned Properties
Buying a HUD real-estate-owned (REO) property: You can use an FHA loan to purchase real-estate-owned (REO) properties foreclosed upon by the FHA. Wendy Lahn of Gustan Cho Associates explains about having multiple FHA loans simultaneously.
Lenders can also help you explore alternative loan programs if you don’t qualify for a second FHA loan or if another loan program fits your financial situation better. An FHA-approved lender can offer various loan programs, including conventional, VA, and non-QM loans, giving you more flexibility and options when financing your home.
Unlike other home types, which require a buyer to be an occupant, you can use an FHA loan to
purchase an REO property even if you won’t live there.
HUD Guidelines on Multiple FHA Loans
Additional requirements and determining factors: It’s important to note that each situation is unique, and there may be additional requirements to be eligible for a second FHA loan. Here are some possible factors they might check. The following sections will review the basic HUD agency mortgage guidelines.
HUD Credit Score Guidelines For FHA Loans
Credit score: Technically, the minimum credit score required for an FHA loan is 500 FICO. The minimum credit score requirement for a 3.5% down payment home purchase FHA loan is 580 FICO. Borrowers under 580 credit scores and down to 500 FICO need a 10% down payment. Most lenders will ask for a minimum credit score of 620 FICO to qualify for the program. Suppose you want to do a second FHA loan. Your credit score will be a critical factor in determining your eligibility.
HUD Debt-To-Income Ratio Guidelines
Debt-to-income ratio: The FHA requires borrowers to have a debt-to-income ratio of 43% or less. This means your total monthly debt payments, including your mortgage, credit cards, and other loans, can be at most 43% of your gross monthly income. If you're
considering a second FHA loan, you must show a strong debt-to-income ratio to qualify.
HUD Guidelines on Employment History
Employment history: The FHA typically requires borrowers to have a steady employment history, with at least two years of continuous employment with the same employer. If you want to do a second FHA loan, ensure you can demonstrate a stable job over the past two years.
Property Condition Guidelines on FHA Loans
Property restrictions: The FHA has specific restrictions on the types of properties that can be financed with an FHA loan. For example, the property must be your primary residence and meet certain safety and livability standards. If you're considering a second
FHA loan ensures the property you’re interested in financing meets these requirements.
HUD Guidelines on Cash Reserves
Cash reserves: Some lenders may require borrowers to have a certain amount of cash reserves to qualify for a second FHA loan. This means that you may need a certain amount of money in savings or other liquid assets to show that you’re financially stable
and can manage multiple mortgage payments.
Do I need to talk with an FHA lender?
Speaking with an FHA-approved lender is crucial if you are considering getting a second FHA loan. Lenders are familiar with the FHA loan requirements, including additional requirements for a second loan. By speaking with a lender, you can determine if you are eligible for a second FHA loan and what steps you need to take to apply for the program. Alex Carlucci of Gustan Cho Associates explains the importance of simultaneously talking with a loan officer experienced in multiple FHA loans.
Applying for a second FHA loan without the guidance of an HUD-approved lender can be risky. With expert advice, you might be aware of the nuances of the program, which can put you at a disadvantage during the approval process. Speaking with a lender can help you avoid costly mistakes and increase your chances of securing an FHA loan.
At Gustan Cho Associates, we have in-house experts who can assist you if you plan to buy a new home. We specialize in various loan programs, including FHA loans, and can help determine which program is right for you. If you still need to determine the eligibility requirements for a second FHA loan, our team is happy to help. Contact us today at 262-627-1965 to get started! Text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.
