In other blog posts we’ve written about the rules for FHA home loans, which include requirements that the property be used as a primary residence.
That means an FHA borrower cannot take out a mortgage to purchase a summer home or vacation property–the rules forbid FHA loans for such “recreational use” purchases. Those rules aside, there are some instances where and FHA borrower could qualify to purchase a second home if certain conditions are met.
The FHA describes such homes as “secondary residences”, stating “A secondary residence is a property the borrower occupies in addition to his or her principal residence.” These home loans are approved only when the FHA has evidence that “an undue hardship exists, meaning that affordable rental housing that meets the needs of the family is not available for lease in the area or within reasonable commuting distance to work…”
FHA-approved lenders are not authorized to determine whether an individual situation meets the FHA requirements for undue hardship–that job falls to the FHA, but the hardship exception must be submitted by the lender to the FHA.
FHA rules for such loans, when approved include a maximum loan limit of “85 percent of the lesser of the appraised value or sales price.” FHA rules also state a borrower can only have one secondary residence at a time, and ALL conditions listed below must apply in order to get the loan approved:
1. The secondary residence cannot be used primarily recreational purposes or be considered a vacation home.
2. The secondary residence must be needed because of seasonal employment employment relocation or other circumstances that don’t involve recreational use of the home
3. There must be a demonstrated lack of affordable rental housing meeting the needs of the borrower in the area or within a reasonable commuting distance of the borrower’s employment.
For condition #3, the FHA requires documentation to support the claim:
1. An explanation in writing from the borrower of the need for a secondary residence and why there is a lack of available rental housing in the area that meets the borrower’s needs.
2. Written evidence from local real estate professionals to support the borrower’s claim of a lack of acceptable rental housing in the area.
The borrower must submit this information to the lender, who will in turn submit the paperwork to the FHA for review. The FHA has the final say in approving these types of loans; not all circumstances may qualify.