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FHA Loan Reader Questions: First Time Homebuyer Requirement?


A reader asks, “I知 not a first time home buyer, I have a conventional loan for a home that I知 planning to keep as a rental home. Can I qualify for a purchase FHA loan on a primary home?”

One of the common misconceptions about FHA home loans is that you MUST be a first-time home buyer in order to qualify for one. This is not true. You may have state or local homebuyer assistance programs in your area that do require the applicant for that program to be a first time buyer, but FHA loans are open to all qualified applicants.

The real issue in this reader question has more to do with debt-to-income ratios (DTIs)–will the FHA lender approve a buyer who already owns a home?

Single-family new purchase FHA home loans are for primary residences. The borrower MUST use the property bought with an FHA guaranteed mortgage as the main address. This particular reader question addresses that issue, so there isn’t a problem on that front. But the FHA does look carefully at a borrower’s debt-to-income ratio. If the existing mortgage PLUS the new mortgage on a potential FHA mortgage exceeds the FHA DTI the loan may be denied unless there are compensating factors.

How does the FHA view DTI? According to an FHA FAQ (Question 77 on the page titled “100 Questions and Answers About Buying a New Home”, we learn the following:


The FHA allows you to use 29% of your income towards housing costs and 41% towards housing expenses and other long-term debt. With a conventional loan, this qualifying ratio allows only 28% toward housing and 36% towards housing and other debt.”

Again, these standards MAY be flexible IF the borrower has compensating factors including addition income, substantial cash reserves or other collateral. Borrowers should discuss their individual circumstances carefully with a lender before deciding what to do about a new FHA mortgage if they are concerned that their current DTI may be too high. Don’t assume you cannot apply for an FHA mortgage–talk it over with a lender to learn what your options may be.

Do you have questions about FHA mortgages? Ask us in the comments section.

8 Responses to FHA Loan Reader Questions: First Time Homebuyer Requirement?

  1. Wanda Phares says:

    If you are planning on keeping your first home as a rental home, how is the rental income counted in your DTI? Will they count the rental income or use that mortgage loan payment against your DTI?
    Thank you!

    • Joe Wallace says:

      This may depend on the lender–best advice is to discuss this specific situation with the loan officer as the financial institution’s standards may play a role in how this is handled on the loan application and whether the first property was purchased with a VA, FHA or conventional loan.

  2. Tammy Ordway says:

    If you currently have an FHA Mortgage that your took out 9 years ago to purchase your new primary residence but now want to purchase a larger home as a primary residence and use my current home as a rental. Can you have two FHA Mortgages?

    • Joe Wallace says:

      FHA handles such circumstances on a case-by-case basis–contact them directly at 1-800 CALL FHA to see if your situation qualifies.

  3. Dan Carmack says:

    Does FHA have an asset and/or reserve requirement for first-time homebuyers? If so, what are they? I understand the specific Lender most likely have overlays, but I’m curious about FHA guidelines. Thanks

    • Joe Wallace says:

      the FHA guidelines would be more concerned with debt-to-income ratio and verifiable income. Assets and reserve funds tend to be compensating factors rather than qualifying ones in many cases.

  4. Martha Steele says:

    What is the current interest rate for a first time home buyer and what is the income level to qualify.

    • Joe Wallace says:

      The short answer is that there is no specific interest rate set for “first time home buyers” when it comes to FHA home loans or minimum income level. FHA loan rules require the lender to examine your income and compare it to your financial obligations to see if you can afford the loan–the actual amount of your income isn’t the only factor in loan approval, but rather whether you can realistically afford the mortgage and your other current financial obligations.

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