Can You Have More Than One FHA Loan at the Same Time?
For first-time homebuyers, FHA loans have long been one of the easiest paths to homeownership. With low down payment requirements and a willingness to offer loans to people with poor credit, it’s easy to see why.
Since it was founded in 1934, the Federal Housing Administration loan was designed to provide a boost to the housing market allowing borrowers to get loans with lower down payments and incomes. In the first quarter of 2018, one in five homes sold were purchased with an FHA loan, according to the U.S. Department of Housing and Urban Development.
Homeowners who meet their eligibility requirements can make a down payment as low as 3.5% to 10%, depending on their credit score.
Having multiple FHA loans at the same time
Generally speaking, you are not allowed to have multiple FHA loans at the same time. Many of the experts we spoke to say that the process to qualify for multiple FHA loans is difficult. That being said, there are some exceptions to the rule for which the FHA will allow a borrower to obtain more than one FHA loan.
- Relocation.You may be eligible for a new FHA loan if you are relocating for an employment-related reason and the new area is more than 100 miles from your current home. If you move back to the original area, you are not required to live in the original house and you may qualify for another FHA loan if you meet both the employment and distance requirements mentioned.
- Increase in family size. If your family has grown since you moved in to the home and it no longer meets your family’s needs, you could qualify for another FHA loan. For this exception, the Loan-to-Value ratio (LTV) must also be 75% or less on your current principal residence as determined by a current appraisal and your outstanding mortgage loan balance.
- Leaving a jointly owned property. If you are leaving your current principal residence with no intent to return and the residence will continue to be occupied by the co-borrower, you might be able to obtain an additional FHA loan.
- Non-occupying co-borrower. You could also be eligible for another FHA loan if you were co-borrower on a current FHA loan but do not live in the home.
The benefits of having multiple FHA loans
The main benefit of having multiple FHA loans is that you’ll be able to take advantage of a low down payment mortgage option. FHA loans only require between 3.5% to 10% down. This may allow you to own another home sooner.
FHA loans also have lower credit score requirements than conventional loans. You can get an FHA loan with a credit score as low as 500.
The disadvantages of having multiple FHA loans
The FHA requires the borrower to pay for a mortgage insurance premium (MIP), which is similar to the private mortgage insurance conventional borrowers must pay for when they put down less than 20%.
The kicker is that a portion of MIP is charged both upfront at closing and throughout the year. The upfront MIP today is 1.75% of the loan amount. Ongoing MIP depends on the size of your loan, but can range from 0.55% to 1% of the loan balance.
Unlike private mortgage insurance, however, FHA borrowers will have to continue paying their mortgage insurance premium throughout the duration of their loan, even if their loan-to-value ratio decreases.
If you have multiple FHA loans, this could magnify those additional costs and may prevent you from reaching other financial goals you may have.
Alternative loan options for borrowers
FHA loans may be one of the most popular options for buying a home with a low down payment but they are not your only option.
|Alternative Loan Options|
|FHA||HomeReady®||Home Possible®||USDA Loan|
|Minimum down payment||3.5%
10% for credit scores between 500-579
|Minimum credit score||500||620||660||640|
|PMI requirement||1.75% upfront +
|Minimum of 1.000% for loans at 95.01%-97.00% LTV||Minimum of 0.75% for loans 95.01%- 97.00% LTV||Upfront fee of 2% of the purchase price|
In 2015, Fannie Mae unveiled a new lending option with the goal of helping borrowers with low to moderate incomes afford a mortgage. Low to moderate income is defined as having income below 80% of the area’s median income. Ideal HomeReady® borrowers have a credit score of 620 and above. Borrowers with credit scores of 680 and up may get even better pricing, according to their site. The required down payment is just under the FHA down payment requirement at just 3%.
One key difference between HomeReady® and the FHA loan is that HomeReady®’s mortgage insurance requirements is “cancellable.” This means that you may have the option to cancel your mortgage insurance when your equity reaches 20%. If you meet all the requirements, you may be able to lower your payments as a result.
This option is primarily for first-time homebuyers. Freddie Mac defines a first-time homebuyer as a borrower with no interest in a residential property within the last three years. The definition for a first-time homebuyer also extends to single parents and homemakers that were previously joint owners in a marital property. Credit scores as low as 660 can be considered for purchases and scores as low as 680 for no cash-out refinancing will be considered. Your income cannot exceed 100% of the area median income or AMI. The percentage of income limits may be higher for places that are deemed high cost but there are no income limits if it is an underserved area.
The Department of Agriculture has a Rural Home Loan Program that may serve as an alternative to the FHA loan. This program, also known as the Section 502 Direct Loan Program is geared toward those with low and very low incomes. To qualify for this option, your income must be at or below the “low-income limit” which is calculated based on your family size, state and county. You must also meet other requirements, including being unable to qualify for a loan from other resources and being without safe and decent housing currently. You will likely be limited on the location of the home as rural areas with a population of 35,000 or less are generally eligible. Unlike the other loan options mentioned, you may also use the loan to build, relocate a home, renovate or buy a new site. Typically no down payment is required, but a “reliable” credit score of 640 or above is seen as acceptable. The USDA sees reliable credit as a “score consist[ing] of three or more trade lines in the last 24 months open and active for 12 or more months.”
Yes, you can have more than one FHA loan at the same time but it is the exception and not the rule. If you do not meet one of the exceptions above, you may have to pay the FHA loan off and apply for another. If you meet one of the scenarios to obtain multiple FHA loans, make sure you compare prices to secure the best deal.