FHA 100 Mile Rule: FHA Guidelines to Know

In most cases, the general FHA guideline is that borrowers may only have one FHA loan at a time. However, there are exceptions to this guideline thanks to FHA’s 100-Mile Rule.

The two exceptions:

• Relocation for a new job
• Using rental income from a departing residence to finance a home with an FHA loan

Job Relocation and FHA 100 Mile Rule

The FHA 100 mile rule allows a buyer to retain their FHA loan on their prior residence and finance another home with another FHA mortgage.

In order to obtain another FHA mortgage without selling the other home, the buyer must:

• Relocate for an employment-related reason
• Establish a new primary residence more than 100 miles from the prior residence

Just satisfying one of the above will not work.

Military Relocation with an FHA Loan

Furthermore, military service members receive an occupancy exception. In order to document the exception, the service member must provide the military orders. It proves the active duty status plus if the duty station is over 100 miles from the new property.

Using FHA 100 Mile Rule to Count Rental Income

If you’re planning to move from one FHA residence to another within 100 miles, you must qualify for both mortgage payments.

Even if the prior residence is being rented out, the rental income may not be counted when using an FHA loan on the new home.

We must use the principal, interest, mortgage insurance, property taxes, and insurance for both the rental property and the new home in the buyer’s debt to income ratio. For most buyers, that is a tough way to qualify, but if you meet the requirement a portion of the rental income can support your new FHA mortgage.

FHA Guidelines for Rental Income on a Departing Residence

If rental income is being derived from the property being vacated by the borrower, the borrower must be relocating to an area more than 100 miles from the borrower’s current principal residence.

If you move back to the original area, you’re not required to live in the original house and may obtain a new FHA-insured mortgage on a new principal residence.

What If I Can’t Meet the FHA 100 Mile Rule?

Luckily, there are additional solutions within the FHA loan as well as other financing options. As mentioned above, it is hard to qualify using two full housing payments.

One possible option includes adding a co-borrower. More specifically, a non-occupying co-borrower, which means that this co-borrower does not have to live in the house. This type of co-borrower is on the loan to help the occupying buyer qualify. Keep in mind, the co-borrower is on the hook for the loan just as much as the primary borrower.

Fannie Mae Loan Allows Rental Income on Departing Residence

Many buyers, lenders, and realtors put their blinders on by thinking FHA is the only low-down-payment purchase loan. Fannie Mae offers the HomeReady loan which only requires a 3% down payment.

Any of these options allow for the down payment to be a gift and the debt ratio may go up to 50% of a borrower’s income. Buyers with good credit scores often have lower monthly payments because the PMI is cheaper.

But, the big advantage to point out, in this case, is using rental income. Fannie Mae has several advantages in this area. First, there is not a distance requirement to count rental income. Learn more about qualifying for a home with rental income here.