Can I Get an FHA Loan on a Second Home?

The FHA program is designed to help increase home ownership in America, and as a result, the general rule is that the FHA will only grant one loan to one person. However, there are always exceptions to the rule, and FHA loans may sometimes come in pairs. The exceptions are quite limited, but in certain circumstances, a borrower may be able to obtain an FHA loan to purchase a secondary residence, or the borrower may be able to obtain a second FHA loan to purchase a replacement primary residence.

Reason for Second Loan

There are two situations in which a borrower might want a second FHA loan. The first is when the borrower is changing primary residences and cannot sell the first home secured by an FHA loan; the second is when a borrower wants a primary home and a secondary home, both of which are secured by FHA loans. The rules are slightly different depending on whether you want a second FHA loan on a primary residence or a secondary home.

Home Ownership Centers

The FHA has created various Home Ownership Centers across the United States. Any application for an FHA loan to purchase a secondary residence must be pre-approved by your local Home Ownership Center. While FHA Direct Endorsement lenders can approve applications for second FHA loans to purchase a replacement primary residence, the Direct Endorsement lenders are not authorized to approve FHA loans on second homes. You must submit an application to the Home Ownership Center in your area.

Second Primary Residence

Circumstances may arise when an FHA borrower must relocate to a new primary residence before the borrower has time to sell their existing home secured by an FHA loan. In those circumstances, the borrower may be able to obtain a second FHA loan if the reason the borrower needs to move is employment-related or because the borrower's family has grown too large for the borrower's existing residence. To qualify under the increased family size exception, the borrower's existing FHA loan must be 75 percent or less of the home's value. In other words, the borrower must have at least 25 percent equity in the first home.

Secondary Home

A borrower with an existing FHA loan can also obtain a second FHA loan in order to purchase a secondary home. In other words, the borrower intends to keep both the primary residence and the secondary home, both secured by an FHA loan. The second home exception is primarily for seasonal employment or other circumstances related to employment. The second home can't be a vacation home or an investment or rental home. Additionally, the borrower must demonstrate to the Home Ownership Center that there is insufficient affordable housing available for rent in the area where the borrower wants to purchase the secondary home. Basically, the FHA says if you can afford to rent, then you should rent before purchasing a second home with an FHA loan; but, if there are no rentals available, the FHA can help purchase the second home. If the Home Ownership Center approves the application for a secondary home loan, then the borrower is limited to borrowing 85 percent of the home purchase price.

References

• Federal Housing Administration: FHA Handbook 4155.1.4.B.2.c: Eligibility Requirements for Principal Residences