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When can you have more than 1 FHA loan at a time?

January 21, 2011

While basic understanding of the “book smarts” within the mortgage industry will help you understand specific terminology, loan programs, and features, there is so much more you will need to know in order to make an informed financial decision.

My approach to providing education strives to further your understanding beyond the “book smarts” of the mortgage industry, and learn the valuable “street smarts” that will help you achieve the best possible results, while avoiding the most common pitfalls that non-informed Borrowers and Real Estate Professionals have experienced.

The Mortgage Street Smarts of when someone may have more than 1 FHA loan at the same time:

Mortgage Street Smarts - FHA Underwriting Guidelines - Provided by Jason E. Gordon, CMPS, Loan Officer, San Diego, CA - www.MortgageStreetSmarts.com

When you stop and think about all of the different combinations of scenarios there are involving a real estate loan, analyzing the variables can be a staggering task.  A question that often comes up is when can someone have more than 1 FHA loan at the same time?  Here is the answer:

Solution Details: To prevent circumvention of the restrictions on FHA-insured mortgages to investors, FHA generally will not insure more than one mortgage for any borrower (transactions in which an existing FHA mortgage is paid off and another FHA mortgage is acquired are acceptable).  Any person individually or jointly owning a home covered by a mortgage insured by FHA in which ownership is maintained may not purchase another principal residence with FHA mortgage insurance except under the situations described below.  Properties previously acquired as investment properties are not subject to these restrictions. 

FHA will not insure a mortgage if FHA concludes that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining investment properties, even if the property to be encumbered will be the only one owned using FHA mortgage insurance. 

We do not object to homebuyers using FHA mortgage insurance more than once if compatible with the homebuyer’s needs and resources as follows:  

A) Relocations.  If the borrower is relocating and re-establishing residency in another area not within reasonable commuting distance from the current principal residence, the borrower may obtain another mortgage using FHA insured financing and is not required to sell the existing property covered by a FHA-insured mortgage.  The relocation need not be employer mandated to qualify for this exception. Further, if the borrower returns to an area where he or she owns a property with an FHA-insured mortgage, it is not required that the borrower re-establish primary residency in that property in order to be eligible for another FHA insured mortgage.  

B) Increase in Family Size.  The borrower may be permitted to obtain another home with an FHA-insured mortgage if the number of legal dependents increases to the point that the present house no longer meets the family’s needs.  The borrower must provide satisfactory evidence of the increase in dependents and the property’s failure to meet the family’s needs.  The borrower also must pay down the outstanding FHA mortgage (secondary liens do not need to be paid off or paid down) on the present property to a 75 percent or lower loan-to-value (LTV) ratio.  A current residential appraisal must be used to determine LTV compliance.  Tax assessments, market analyses by real estate brokers, etc., are not acceptable as proof of LTV compliance. 

C) Vacating a Jointly Owned Property.  If the borrower is vacating a residence that will remain occupied by a co-borrower, the borrower is permitted to obtain another FHA-insured mortgage.  Acceptable situations include instances of divorce, after which the vacating ex-spouse will purchase a new home, or one of the co-borrowers will vacate the existing property.  

D) Non-Occupying Co-Borrower.  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.  (See HUD Handbook 4155.1 for additional information).   Under no circumstances may investors use the exceptions described above to circumvent FHA’s ban on loans to private investors and acquire rental properties through purportedly purchasing “principal residences”. 

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.

Handbook 4155.1:  4.B.2.c-d

DISCLAIMER: All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

The information contained in this post is meant to educate potential Borrowers, Real Estate Agents, and/or other Interested Parties to allow a smooth transactional flow. This information is not intended to assist any parties in circumventing current underwriting guidelines in any manner that may be deemed ethically questionable.

For more information on topics like this, please feel free to visit www.MortgageStreetSmarts.com (an educational resource for Borrowers, Real Estate Agents, and Financial Professionals). Educational content provided by:

Jason E. Gordon

Residential Mortgage Specialist

CMPS, CDPE, NMLS 259027

Office: 619-200-8031

Email: info@MortgageStreetSmarts.com

Online Application www.MortgageStreetSmarts.com

 

 

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