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Multiple FHA Loans? The Rules

Based on some of our reader questions lately, there seems to be some confusion over the rules for FHA loans where the borrower is interested in applying for an additional FHA mortgage. What are the rules in HUD 4000.1 on this issue?

There are two general areas of confusion related to those rules. Some borrowers have purchased a primary residence with non FHA loans and want to know if the FHA loan rules governing additional mortgages apply to them.

According to a literal interpretation of the requirements in HUD 4000.1, borrowers who have a non-FHA mortgage are free to apply for an FHA mortgage without worrying about being in violation of the rules. FHA loans have rules for additional mortgages apply which specifically to those who already have an existing FHA loan.

However, a borrower interested in another mortgage should know that regardless of circumstances, the lender is required to evaluate the applicant’s debt-to-income ratio to determine if the new loan is possible. So while those with non-FHA mortgages may be technically free to apply for FHA loans, the debt to income ratio question is one that will play a large part in the decision to approve or deny the loan application.

Additionally, for all forward FHA mortgages under the FHA Single Family mortgage loan program, occupancy of the newly purchased property is a requirement. You cannot purchase a new home under the Single Family mortgage loan program unless you intend to occupy it as your primary residence.

For borrowers with existing FHA mortgages, HUD 4000.1 instructs the lender:

“FHA will not insure more than one Property as a Principal Residence for any Borrower, except as noted below. FHA will not insure a Mortgage if it is determined that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining Investment Properties, even if the Property to be insured will be the only one owned using FHA mortgage insurance.”

Exceptions for the above include provisions for those experiencing an increase in family size, job relocation, vacating a jointly-owned property, and situations where the applicant is a non-occupying co-borrower on another property. Borrowers should discuss their needs with a participating lender to see what may be possible under such circumstances.

3 Responses to Multiple FHA Loans? The Rules

  1. Don Cartegena says:

    So is there a maximum number of properties one can theoretically have under fha guidelines? Say for example a person owns a home in 1 city with an fha mortgage and then has to relocate to another city for job reasons. While in this city there family size increases by several individuals via marriage and or kids. Would that person be able to get a 3rd fha mortgage. What is the most number of mortgage you have heard of someone getting via fha?

    • FHA.com Staff Writer says:

      FHA loan rules require the lender to determine that the borrower can afford the loan, so the borrower’s debt to income ratio would be critical in loan approval. Chances are good that in the situation you are describing, the debt-to-income ratio would become an issue with additional mortgage loans before FHA home loan rules on loans for a second property would. In any case, occupancy would be a key issue. The borrower must intend to occupy the property to be purchased with the new FHA loan as the primary residence. FHA loan rules in HUD 4000.1 say:

      “FHA will not insure more than one Property as a Principal Residence for any Borrower…(editor’s note: with certain exceptions) FHA will not insure a Mortgage if it is determined that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining Investment Properties, even if the Property to be insured will be the only one owned using FHA mortgage insurance. Properties previously acquired as Investment Properties are not subject to these restrictions.”

  2. Don Cartegena says:

    I have another question. Sorry for posting here but I don’t see an option to submit a question. The question is totally unrelated to this question.

    What are the rules for buying properties that have been “flipped” meaning an investor/homeowner has purchased the property did some updates and are now attempting to sale the property. Are there any sort of “timing” requirements (ie buyer can’t buy before 6 months after seller has purchased property) Also is there any sort of maximum markup on the price the investor is attempting to sale for on the property?

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