FHA Loans For Second Homes Information

          FHA defines a principal residence as a property that will be occupied by the borrower for the majority of the calendar year. At least one FHA mortgage applicant must occupy the property and sign the security instrument and FHA mortgage note for the property to be considered as owner occupied. Current security instruments require FHA mortgage applicant to establish bona fide occupancy in the home as the borrower's principal residence within 60 days after signing the security instrument with continued occupancy for at least one year.

Except for cases of undue hardship or extenuating circumstances beyond the borrower's control FHA will allow an FHA mortgage applicant to own 2nd homes.

          To prevent circumvention of the restrictions on FHA-insured mortgages to investors, FHA will generally  not insure more than one mortgage for any borrower. An individual or couple owning a home covered by a mortgage insured by FHA that will be kept may not purchase another principal residence with FHA mortgage insurance except under the situations (described below). Properties previously acquired as investment properties are not subject to these FHA loan restrictions.

A. Relocation- If the FHA mortgage applicant is relocating and reestablishing residency to another area not within reasonable commuting distance of the current principal residence, he or she may keep the property covered by the previous FHA-insured mortgage as a rental; there is no need to reduce the principal balance.

B. Increase in family Size- If the number of dependents has increased to the point where the present house no longer meets the family's needs, the borrower may be permitted to obtain another home with a FHA-insured mortgage. The borrower must provide satisfactory evidence of the increase in dependents and how the property no longer meets the family's needs, and must also pay down the outstanding mortgage balance on the present property to a 75 percent or less loan-to-value (LTV) ratio exclusive of any financed MIP. A current residential appraisal must be used to determine loan-to-value compliance. Tax assessments, market analyses by real estate brokers, etc., are not acceptable.

C. Vacating a jointly owned property- If the FHA mortgage applicant is vacating a residence that will remain occupied by a co mortgagor, the individual vacating the property is permitted to obtain another FHA-insured mortgage. Acceptable situations include those following a divorce where the vacating ex-spouse will be purchasing a new home, or where one of the will vacate the existing property and is getting married.

D. Non occupying co-borrower- An FHA mortgage applicant that will be a non occupying co-borrower on property being purchased with a FHA-insured mortgage as a principal residence by other family members may have a joint interest in that property as well as his or her principal residence that is covered by a FHA-insured mortgage.

In no event may the exceptions described above be used to assist investors in acquiring rental properties through purportedly purchasing "principal residences" and, thus, circumventing FHA's ban on loans to private investors. Considerations in determining the eligibility of a borrower for one of these exceptions is the length of time the previous property was owned by the borrower and the circumstances that compel the borrower to seek another FHA-insured residence. In all other cases, the purchasing borrower must either pay off the FHA-insured mortgage on the previous residence or terminate ownership of the property.

Have Questions? Fill out a Quick Response form or (Apply Now)