FHA loan rules for single-family homes are designed to prevent investors from using these loans to buy more investment properties. An FHA borrower applying for a single-family home loan under the FHA program is required to use that home as the principle residence, and cannot buy, then turn around and vacate the property in order to rent it out.
According to FHA loan rules found in HUD 4155.1, “To prevent circumvention of the restrictions on making FHA-insured mortgages to investors, FHA generally will not insure more than one principal residence mortgage for any borrower. 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.”
Furthermore, “Any person individually or jointly owning a home covered by an FHA-insured mortgage in which ownership is maintained may not purchase another principal residence with FHA insurance, except in certain situations”.
Yes, the FHA does permit some exceptions. Here’s one, as described in HUD 4155.1. “A borrower may be eligible to obtain another FHA-insured mortgage without being required to sell an existing property covered by an FHA-insured mortgage if the borrower is
• relocating, and
• establishing residency in an area outside reasonable commuting distance from his/her current principal residence.
If the borrower subsequently returns to the area where he/she owns a property with an FHA-insured mortgage, he/she is not required to re-establish primary residency in that property in order to be eligible for another FHA-insured mortgage.”
Another exception involves an increase in family size. FHA loan rules say, “A borrower may be eligible for another home with an FHA-insured mortgage if the number of his/her legal dependents increases to the point that the present house no longer meets the family’s needs.”
This exception requires “satisfactory evidence” that the increase in family size does indeed equal the need for a larger home, and also, “that the Loan-To-Value (LTV) ratio equals 75% or less, based on the outstanding mortgage balance and a current appraisal. If not, the borrower must pay the loan down to 75% LTV or less.”
Borrowers who want to learn more about these exceptions should speak to a an FHA lender or contact the FHA directly at 1-800 CALL FHA.
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