How To Use an FHA Loan To Purchase a Second Home

While you may think Federal Housing Administration (FHA) loans are only for first-time homebuyers, think again. While first-time buyers do indeed make up the majority of FHA borrowers (since FHA loans typically allow for low down payments and accommodate lower credit scores), 17 percent of FHA loans actually go to borrowers who have already owned a home.

Should you consider an FHA loan for your next home purchase? You’ve got questions, and we’ve got answers:

What are the advantages of using an FHA loan even if you’re not a first-time buyer?

FHA loans are those issued by FHA-approved mortgage lenders like OVM Financial and allow buyers who might not otherwise qualify for a conventional mortgage loan to buy a home. Some of the perks of taking out an FHA loan include the following:

• Enjoy a down payment as low as 3.5%if you have a minimum credit score of 580.
• Gain loan approval even with a credit score as low as 500 (though you’ll probably have to make a 10% down payment).
• Qualify for a home loan even if you’ve had a fairly recent foreclosure (three years or more ago) or bankruptcy (two years or more ago).

Can you qualify for an FHA loan more than once?

As long as you’ve paid off a previous FHA loan, whether while living in that home or as a result of selling it and paying off the mortgage, you can apply for another FHA mortgage loan so long as you’ve had 12 months of on-time payments on that first loan. As with your first FHA loan, however, you’ll need to be occupying the home as your primary residence.

Can you have more than one FHA loan at the same time?

While you can qualify for FHA loans more than once, you generally can’t have more than one FHA mortgage at a time. However, there are some circumstances where you might qualify for a second FHA loan without paying off the debt on your current one. The possible scenarios might be that you’re:

• Making a job-related relocation to an area beyond reasonable commuting distance to your current home and where affordable rental housing isn’t available.
• Buying a home due to departure from a jointly owned property where the co-owner plans to continue to reside. This might happen following a divorce settlement, for example.
• Purchasing your own home while serving as a cosigner on an existing FHA loan.
• Growing your family (that you can document) that prevents your current home from being sufficient to accommodate your needs.

Can you purchase an investment property with an FHA loan?

Typically you cannot use an FHA loan to purchase an investment property. FHA loans are designed to finance primary residences, not second homes, rental homes, vacation residences, or investment properties of any kind. Thus, at least one borrower listed on an FHA loan must be using the home as a primary residence within 60 days of closing on the property.

There are a few unusual exceptions, however:

• You can refinance an existing FHA loan home with an FHA streamline refinance even if you no longer live in that home. However, that refinance must lower your monthly principal and interest payments.
• You can purchase a multi-family property of up to four units, provided you use one of those units as your primary residence. Then you can rent out the other three units for income.

While there are many appealing reasons to apply for an FHA loan, keep in mind the loans have their drawbacks, including a requirement to pay mortgage insurance premiums, often higher interest rates, and strict requirements as to how much you can pay for a property based on your locality.

If you’re interested in exploring the options for using an FHA loan to buy a second home or would like to explore other home loan alternatives, our team of expert OVM Financial loan officers is here to help. Give us a call, or start your application online.