If you’re a borrower with a low credit score – or an aspiring first-time home buyer who can’t make a large down payment – then a Federal Housing Administration (FHA) loan might make an excellent financing option on your path to homeownership.
FHA loans are a popular type of home loan because they require a FICO score of 580 and a down payment of 3.5%. One downside to FHA loans, though, is that you can generally only have one of these mortgage loans at a time. So if you’re trying to break into the world of real estate investing, you’ll need to explore other financing options.
Let’s look at why you can have only one FHA loan at a time, what the exceptions to this rule are, and how to qualify for a second FHA home loan.
Can You Have Two FHA Loans At The Same Time?
FHA loans are intended to help a borrower purchase their primary residence. So while there’s no limit to how many FHA mortgages you can get during your lifetime, you can generally only have one FHA loan at a time because you can only have one primary residence.
This restriction helps keep the loan program – and its more lenient requirements – from being used to purchase investment properties.
When Can You Get A Second FHA Loan?
Even if you haven’t sold your current home or paid off your existing FHA loan, you may qualify for one of the following exceptions to the Federal Housing Administration’s restrictions on taking out multiple FHA loans.
Just remember that even if one of these exceptions applies to you, you’ll still have to prove to your lender that your monthly income can handle two mortgage payments.
Let’s say you’re relocating for a job, and that job isn’t reasonably commutable from your current primary residence. Even if you’re financing your current residence with an FHA loan, you may be able to qualify for a second FHA loan for your new home even before you’ve sold your old house.
Your Family Has Grown
If your family has outgrown your two-bedroom starter home, you may be able to take out a second FHA loan. To qualify, you’ll need to either:
- Have at least 25% equity in your current home
- Pay down your FHA loan’s balance to 75%
- Select a different type of home loan
You’re Co-Signing On Another FHA Loan
If you’re already financing a primary residence with an FHA loan, you may be able to co-sign on another FHA loan for a family member. Just remember that the second FHA mortgage will become your responsibility if the relative fails to make their payments.
You’ve Gone Through A Divorce
If you’re moving from a house you shared with a co-borrower – for example, you’re going through a divorce, and your spouse is remaining in the current home – you may qualify for a second FHA loan to buy a new primary residence.
You’re Investing In An FHA Foreclosure
You may be able to qualify for a second FHA mortgage if you’re using the loan to invest in a property that the FHA has foreclosed on – otherwise known as a HUD Real Estate Owned (REO) Property.
How Do You Qualify For Multiple FHA Loans?
To qualify for multiple FHA loans, you’ll still need to meet basic FHA loan requirements. But your lender may prefer you to meet additional financial requirements before they incur the risk of taking you on as a borrower.
Meet FHA Loan Qualifications
- Credit score and down payment: You’ll need a credit score of at least 580 and a down payment of 3.5% of your home’s final purchase price to qualify for an FHA loan. While you can qualify for an FHA loan with a credit score as low as 500, your down payment would then need to be 10% of the purchase price. To qualify for an FHA loan through Rocket Mortgage®, you’ll need a minimum credit score of 580.
- Debt-to-income ratio: While requirements may vary by lender, you’ll generally need a debt-to-income (DTI) ratio of 43% or lower to qualify for an FHA loan.
- Satisfy any additional requirements: Your lender may require you to have enough money in your savings account to cover closing costs in addition to a down payment and two monthly mortgage payments.
What Are Some Alternatives To Taking Out Multiple FHA Loans?
If your circumstances don’t allow you to have more than one FHA loan – or if you can’t yet meet the mortgage qualifications to take out a second loan – you may be need to take one of the following actions:
- Sell your current home. If you don’t qualify for multiple FHA loans, you may need to sell your current home and use the profit to pay off the balance on your mortgage. And if you intend to hold on to your current home as a second home or investment property, you’ll still need to pay off your current FHA mortgage before you can apply for a new FHA loan.
- Rent until your home sells. Purchasing a home is often cheaper in the long run. But the upfront costs and mortgage requirements may mean you’ll have to rent instead of buy, especially if you can’t qualify for two FHA loans at the same time.
- Refinance your current FHA loan. To refinance your FHA loan to a conventional loan, you’ll need a minimum 620 credit score and a maximum DTI ratio of 43%. Replacing your FHA loan means you won’t have to pay mortgage insurance premium (MIP) on your home loan. And if you’ve reached 20% equity in your current home, you won’t be required to pay private mortgage insurance (PMI) on your new conventional loan, either.
- Finance with a low down payment conventional mortgage. If your income qualifies, you can purchase a home with a minimum credit score of 620 and a 3% down payment using a Fannie Mae HomeReady® loan. You can also finance with a Freddie Mac Home Possible® loan. You’ll need a higher credit score of 660, but the down payment requirement is the same.
- Buy with another government-backed loan. If you and your property qualify, you can finance your new home with a VA loan or USDA loan.
The Bottom Line
Over the course of your life as a homeowner, you can certainly take out more than one FHA loan. You just can’t hold more than one FHA loan at a time unless your circumstances qualify you to do so.
Perhaps you need to purchase a new primary residence, or you want to venture into real estate investing. Consider refinancing your existing FHA loan into a conventional loan, or do an FHA cash-out refinance to fund your new primary residence or investment property. Start the mortgage process to see what you qualify for today.