Can you get another FHA loan if you already have an FHA loan on your current home and plan on keeping both homes after closing on the new one? Does FHA allow a borrower to have more than one FHA loan?
Contrary to popular belief, FHA does allow a borrower to have more than one FHA loan in certain circumstances. These circumstances typically must be backed up with proper documentation, and they are subject to final approval by an FHA underwriter.
Here are the situations that are specifically addressed in the FHA handbook:
- RELOCATION. If a borrower is relocating and re-establishing residency in another area, they may obtain a second FHA loan provided the new area is not within reasonable commuting distance from the current principal residence. Sometimes this is acceptable even within the same metropolitan area as commutes in large cities are often very long during rush hour. Ultimately it's an underwriter's final decision, and common sense will determine whether the situation is acceptable. Relocation is also an exception to FHA's new rules about offsetting current mortgage payments with rental income.
- INCREASE IN FAMILY SIZE. A borrower may be permitted to obtain another FHA loan if their number of legal dependants increases to the point that the current home no longer meets the family's needs. Satisfactory evidence of the increase in dependents must be provided, along with an explanation of why the current property no longer meets the needs and also why the current property does meet the needs. A good example would be moving to a home that has more bedrooms because of an increase in children or care of an elderly family member.
- VACATING A JOINTLY OWNED PROPERTY. This is common in instances of divorce or domestic partner separation when both individuals are on the current loan. If one individual vacates the property, they may obtain another FHA loan provided at least one borrower on the current loan is going to continue to occupy the property.
- NON-OCCUPYING CO-BORROWER. A non-occupying co-borrower (co-signor) who already has an FHA loan is permitted. A good example would be when a parent wishes to co-sign for their child but already has an FHA loan.
FHA has instituted new guidelines regarding offsetting current mortgage payments with rental income. These rules apply regardless of whether the current loan is FHA or not. In situations of relocation, a lease must be presented and FHA recommends that underwriters document that renters have paid either the first month's rent or a security deposit. Furthermore, some instances require the borrower to have at least 25% equity in the current property. Borrowers that can't meet these new guidelines will have to qualify with both payments.
Every situation is different, and adequate documentation must be presented to qualify for many of these exceptions. There are some RARE INSTANCES where other situations may allow a borrower to have more than one FHA loan, but underwriters will require a good explanation and they will want to see the full loan file before making a final decision.