May 28, 2020

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FHA Loan Rules For Second Residences

FHA Loan Rules For Second Residences

One thing you will read often about FHA single-family home loans? They are only intended for owner-occupied residences.

So why do some borrowers hear of some homeowners being approved for FHA loans for a second house? There is a provision in HUD 4000.1 that allows an FHA mortgage for a “second” primary residence, as well as a provision for what the FHA and HUD term “secondary residences” under certain conditions.

The FHA loan rules say secondary residences are defined as follows:

“Secondary Residence refers to a dwelling that a Borrower occupies in addition to their Principal Residence, but less than a majority of the calendar year. A Secondary Residence does not include a Vacation Home. “

FHA loan approval may be possible for a secondary residence when the following applies:

  • the Secondary Residence will not be a Vacation Home or be otherwise used primarily for recreational purposes;
  •  the commuting distance to the Borrower’s workplace creates an undue hardship on the Borrower and there is no affordable rental housing meeting the Borrower’s needs within 100 miles of the Borrower’s workplace

The rules say (as noted in part above) there must be qualifying circumstances in order for loans for a second primary residence or secondary residence to be approved.

Those circumstances can include an increase in family size, the need to buy a home to be close to a job, or when a borrower is vacating a home purchased with an FHA loan with that person named as a co-borrower such as in cases of divorce or similar circumstances.

A non-occupying co-borrower may also be approved an FHA mortgage on a residence they want to purchase for their own.

For these qualifying circumstances, the lender may be required to gather supporting documentation for the borrower, so be prepared for that contingency.

In every case, there is one important caveat to note when considering the purchase of a secondary residence with an FHA mortgage. HUD 4000.1 has specific language that prohibits these transactions from being used to purchase investment property. In this case, that definition may extend to any house, condo, or other real property the borrower wants to purchase but does not intend to live in.

From HUD 4000.1:

“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. “

Ask a loan officer if you need to know about qualifying for an FHA mortgage loan for a primary residence when you already own a home to learn what that financial institution’s requirements may be in addition to the FHA loan rules discussed here.

Bruce Reichstein - FHA News Author

By Bruce Reichstein

August 13, 2019

Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.

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