An FHA loan is a government-backed mortgage ideal for home buyers with less-than-perfect credit. It’s also great for a first-time home buyer without the cash reserves to make a large down payment.
The Federal Housing Administration (FHA) insures loans to assist people who may not qualify for a conventional loan to purchase a home. A borrower typically cannot have an FHA loan twice, but in some cases, it may be allowed.
FHA products have significantly improved homeownership for borrowers of color and LGBTQ+ individuals, who are often denied loans despite being qualified. For example, about 30.63% of FHA-backed loans are provided to borrowers of color, which is much higher than the acceptance rate for conventional loans.
LGBTQ+ borrowers are 73% more likely to be denied a loan than their heterosexual counterparts, but an FHA mortgage, with its looser requirements, may be more feasible and less likely to be denied.
If you’ve achieved your dream of homeownership and are now striving for more, Pride Lending can help. We work with borrowers of all backgrounds and identities, including those who have been historically discriminated against in housing.
Read on to understand FHA loan requirements and the conditions when you may qualify for multiple FHA loans.
Can You Have Multiple FHA Loans At Once?
Generally speaking, you are only allowed one FHA loan at a time. However, there are special circumstances where a person may be eligible for two FHA loans.
The General Rule: One FHA Loan at a Time
FHA products are designed to make homeownership accessible for people who otherwise might not qualify for a conventional mortgage. Therefore, they are limited to purchasing a primary residence but not for investment properties.
Exceptions to the Rule
There are specific circumstances where a borrower could qualify for a second FHA home loan before selling or paying off the first one.
You are relocating for a new job that is not a reasonable commuting distance from your current home. If there isn’t affordable rental housing, you may qualify for a second FHA loan before selling your current primary residence and paying off the first FHA mortgage.
You are moving out of a jointly-owned property, but the co-owner will continue to live there. This is often the case with divorce. If the divorce decree shows this settlement, you can submit an FHA loan application for a new primary residence.
You are a co-borrower on the FHA loan of a family member, but you need to get an FHA loan for yourself to purchase your own home. Or, you have an FHA loan on your home, and you’re co-signing for someone else’s FHA loan. You will be responsible for the additional FHA loan if the person you cosigned for fails to meet their payment requirements.
You need to purchase a larger home due to increasing family size. You must prove there is an increase in dependents and that the size of the current FHA-financed home no longer meets your family’s needs. To qualify, you must have 25% equity in the current home or pay down the FHA mortgage balance to 75%.
You are purchasing a HUD Real Estate Owned (REO) property, an FHA property that has been foreclosed, as an investment property. This is one case where the loan program allows a borrower to get an FHA loan for a home that is not their primary residence.
Lifetime Limit on FHA Loans
Although you are typically only allowed one FHA loan at a time, there is no limit to how many FHA mortgages you can have in a lifetime. FHA mortgages must be through an approved FHA lender and satisfy current FHA guidelines.
Requirements for FHA Loans
Down Payment Requirements
Your down payment is dependent on your credit score. A minimum credit score of 580 qualifies for a down payment as low as 3.5% of the home’s purchase price, while credit scores of 500-570 require a down payment of 10% of the purchase price.
If you’re having trouble getting the necessary funds for your down payment, Pride Lending can help. We have access to local, state, and national assistance programs that can provide loans or grants to make up the difference.
Credit score Requirements
If your credit score is below 500, you must improve it to meet the FHA loan requirements and qualify for an FHA mortgage.
Debt-to-Income Ratio
Your debt-to-income (DTI) ratio is the total of your monthly debt payments divided by your gross monthly income. This percentage should be under 43% to qualify for an FHA loan.
In some cases, a high credit score may still qualify you for an FHA loan, even if your DTI ratio is above 43%.
Mortgage Insurance Premium
Like private mortgage insurance (PMI) for a conventional loan, a mortgage insurance premium (MIP) protects your FHA loan lender if you default.
An MIP has two types of payments: an initial fee due at closing and a monthly fee added to the monthly mortgage payment for the life of the loan.
The fee at closing is 1.75% of the loan amount. This amount can be rolled into your loan if you don’t have the cash reserves to pay it upfront.
Additional Criteria
FHA loans require your Social Security number, proof of income, and assets to demonstrate that you can afford the payments. To qualify for an FHA, you need enough savings to pay the closing costs, down payment, and three months of mortgage payments.
Requirements for a Second FHA Loan
To qualify for multiple FHA products, you must meet the above FHA eligibility requirements for the two FHA loans and prove to the FHA-approved lenders that you can make two mortgage payments with your monthly income.
FHA Loan Limits
Depending on the property type and what county the property is in, there is a limit to the maximum amount you can borrow for an FHA loan. For 2024, the nationwide maximum limit for a new FHA loan is $1,149,825.
Mortgage Insurance Premiums (MIP)
Like the mortgage insurance premiums for one FHA loan, you will pay two fees for the MIP on your second FHA loan. At closing, the fee is 1.75% of the total loan amount, and you will pay an ongoing premium added to your monthly mortgage payments.
Alternatives to Multiple FHA Loans
There are other low-down-payment home financing choices if you have a current FHA loan but don’t qualify for multiple FHA loans.
Refinancing an Existing FHA Loan
Borrowers unable to qualify for two FHA loans can refinance the mortgage loan on their current home from an FHA to a conventional loan. Refinancing requires a credit score of at least 620 and a maximum debt-to-income (DTI) ratio of 50%.
If you have 20% equity in your current home, you will no longer have to have the mortgage insured by the MIP, and the new mortgage will not require paying PMI.
Other Government-Backed Loans
If you and the property qualify, you can receive a second loan through the Department of Veterans Affairs (VA) or the US Department of Agriculture (USDA).
USDA loans are for properties in specific rural geographic areas. Ideal for low to moderate-income borrowers, this option offers low or no down payments.
VA home loans are for US military veterans and their spouses. This loan type does not require a down payment or PMI, and Pride Lending has no FICO requirement for VA loans.
Conventional Loans
There are also conventional loan options, such as a jumbo mortgage that exceeds the federal loan limit.
The cost of getting a jumbo loan is often higher than a conforming loan, and you may not be approved if this increases your DTI above the 43% limit. However, this is an option if your personal finance budget can afford it.
Conclusion
FHA loans are ideal when low credit scores make it difficult to achieve homeownership. Borrowers with low credit scores may find it easier to get their first FHA loan than alternative loan programs.
If you’re considering a second mortgage, you have many choices. Before you take on two mortgage payments, reach out to a loan officer first to learn if FHA financing works for your situation. You may be able to get a second FHA loan if you meet one of the exceptions.
Pride Lending is your ally in homeownership, whether you are a first-time homebuyer or an investor seeking your next portfolio acquisition. Our team is composed of allies and members of marginalized communities who are passionate about ensuring that underserved communities can achieve their homeownership dreams. We serve everyone, regardless of their background, with the same unwavering commitment to excellence.
If you have questions about how to get an FHA loan or simply want to explore your loan options, call us at 725-231-0192 or email us today. You can also apply for a loan with our simple online application.
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