Many assume that FHA loans are only for first-time homebuyers. While first-time buyers do make up the majority of borrowers that take advantage of these loans, the fact is many borrowers who already own a home or have in the past can take advantage of the benefits associated with an FHA loan.
But can you buy a second home with FHA? While buying a second home with FHA is possible, there are some considerations. Here we take a closer look at the FHA and how it can benefit you when buying a second home or even an investment property.
- FHA loans backed by US Federal Housing Administration, for those who may not qualify for conventional loans
- FHA loans primarily for purchasing primary residence, but can be used for second home in certain circumstances
- Eligibility requires credit score of 500-579 with 10% down payment, or score of 580+ with 3.5% down payment and verifiable employment history
- Possible to qualify for second FHA loan in certain circumstances, not designed for investment properties but can be used in some scenarios.
What is an FHA loan?
An FHA loan is a mortgage loan backed by the U.S. Federal Housing Administration. These loans require lower minimum credit scores and smaller down payments than traditional mortgage loans. While the federal government insures these loans, they are actually administered by FHA-approved lenders. These loans are designed for those who may not qualify for more conventional mortgage loan options.
Can you use an FHA loan on a second home?
An FHA loan is designed to be used to purchase a primary residence. However, there are circumstances when you can purchase a second home with an FHA loan. For example, if you already own a home with an FHA loan but no longer live in it, such as through a divorce, you may be eligible for a second home purchase. Also, if you had a home with an FHA loan and decided to keep that home as an investment and rental property, you could qualify for an FHA loan for your new primary residence.
Before diving into more occasions when you may qualify for a second home FHA, let’s look at the eligibility qualifications for an FHA loan.
- You must have a credit score of 500-579 with a 10% down payment or a score of 580 and above with a 3.5% down payment.
- Verifiable 2-year employment history
- Verifiable income with pay stubs, tax returns, etc.
- Front-end debt ratio of no more than 31% of gross monthly income
- Back-end debt ratio of no more than 43% of gross monthly income
- You must wait two years after a bankruptcy or three years after a foreclosure before applying
- FHA approved appraisal that meets the HUD guidelines
- Purchasing a primary residence
- Maintain FHA mortgage insurance on the loan
Aside from these basic FHA requirements, there are other requirements when using an FHA loan on a second home. These can include higher down-payments, higher minimum credit score requirements, and a cash reserve.
Can you have more than one FHA loan at the same time?
While you can qualify for an FHA loan more than once, you can only have one FHA loan at a time under general circumstances. However, there are four scenarios where you may qualify for a second FHA loan while still paying for your first property and FHA loan.
- Job relocation: If you are changing jobs and require a relocation over 100 miles from your current primary residence and do not want to sell your current residence, you may qualify for a second FHA loan to purchase your new primary residence.
- Leaving a joint-owned property: Oftentimes, especially during a divorce, you may be the co-owner of a current home where you no longer reside. In this case, you may qualify for a second FHA loan for your new primary residence.
- You were a cosigner for another property: If you acted as a cosigner for someone else to purchase a home with an FHA loan but never lived in the said home, you may qualify for an FHA loan to purchase your primary residence.
- Growing your family: If your current home no longer meets the needs of your growing family, you may qualify for a second FHA loan to purchase a new primary residence and maintain your first home as a rental property.
Can you purchase an investment property with an FHA loan?
FHA loans are designed to purchase primary residences and not second homes or investment properties. As shown above, there are some scenarios where it is still possible to buy a second property as a primary residence, leaving your first home as an investment property. There are two other times where an FHA loan may be used to purchase investment properties.
- Refinancing an existing FHA loan: Using a streamline refinance, you can refinance an existing FHA loan on a home you no longer live in as long as it lowers your monthly principal and interest payments.
- Multi-family properties: You can qualify for an FHA loan for a multi-family, such as a duplex, as long as one of the units will be used as your primary residence.
Applying for an FHA loan on the second home mortgage
Before you consider applying for an FHA on a second home mortgage, you will want to focus on boosting your credit score and increasing your cash reserves. In addition, start with an FHA mortgage calculator to see how much you can afford when it comes to a second home and what specific qualifications you may need.
Financing your second home with FHA
While financing a second home with an FHA loan is not common, it is still possible. When you purchase the second home as your primary residence, it gives you a second investment home that can add to your overall net worth.
However, at Hero Home Programs, we understand how confusing the home buying process can be. We can help you navigate the FHA home buying process and help ensure you meet the qualifications for a new FHA loan when needed. To learn more about Hero Home Programs and how we can help, contact us online today.