Jeff is on of the premier Bloggers here on Active Rain. He is very knowledgable and tells people what they need to hear, not what they want to hear. His post is about misinformation that is given by some loan officers and the Rules/Guidelines that they must follow. If you have any questions, about purchasing another home while retaining a current home which was financed using FHA, I would be glad to discuss your options.
How many FHA Loans can I have?
FHA Mortgages have become increasingly more popular for 2 reasons. You just need 3.5% as a down payment and that many lenders will go down to a 620 credit score. What I am seeing now is the confusion about whether you can have 2 FHA loans because loan officers and lenders are giving the wrong information on the basic guidelines. And yes, you can have two, and even more, FHA mortgages.
Just yesterday, I had a client that was told that they need 30% down on their new property in order to have a FHA mortgage, because they currently have a mortgage. What gets worse is that this borrower has a conventional mortgage on their current property, not a FHA loan. Not only did the loan officer get the percentage down wrong, but they never asked what kind of mortgage they have now. In this example, this borrower could buy a new primary property with a FHA loan and only with 3.5% down. But beware of the Buy and Bail, mentioned below.
Why would someone have 2 FHA mortgages?
The main reason would be that borrower can't sell their current property that has a FHA mortgage because they could be under water on the house. And this could cost them additional monies just to pay off the house in order to sell it. Overall, the borrower has a need to move because they need to upgrade because of family size and or because they are relocating. But in order to do this, you have to fall into a few different categories. Please read on...
What things should you be aware of when it comes to having two FHA loans :
There are considerations in determining the eligibility for a borrower in having more than 1 FHA loan in regards to the exceptions that I will list below. The considerations are as follows :
- your length of time of time on the current property that you own, that has the FHA mortgage, and
- circumstances that make that same borrower want to purchase another property with a FHA insured mortgage
Policy Exceptions & Eligibility Requirements
- Increase in Family Size - If the borrower's legal dependents increase beyond a point that is not conducive to the current housing structure, that house no longer meets the family needs, the borrower must :
- pay down 25% equity in their current property or 25% down on their new property, which represents a 75% LTV (loan to value)
- provide satisfactory evidence of the increase in dependents & the property's failure to meet such family needs
Note : A certified FHA appraiser must do a new appraisal on the old home to determine such value. Tax assessments or market analysis reports aren't acceptable.
- Relocation - a borrower can relocate while currently having a FHA mortgage if :
- relocating and
- if they establish residency in an area not within reasonable distance from their current principal residence (reasonable will be different with all FHA lenders)
If the borrower returns to the area in which they currently own a property with a FHA mortgage, they are not required to re-establish primary residence in that property.
Note : The relocation doesn't need to be employer mandated in order to qualify for this exception.
- Vacating a jointly owned property - A borrower can be eligible if they are vacating a property that will be occupied by the co-borrower.
- An example would be in case of a divorce and the ex-spouse will be buying a new property with a FHA mortgage.
- Non-Occupying Co Borrower - A borrower who has co-signed for another family member to purchase or refinance a primary residence with a FHA mortgage, that borrower is allowed to buy or refinance their own property with a FHA loan. This is as long as they are a non-occupying co-borrower - FHA Non-Occupant Co-Borrower loans - Also known as Kiddie Condo loans
All of these exceptions are found in : HUD 4155.1 4.B.2.d
On a temporary basis – While FHA analyzes this situation - September 18th, 2008 - ML 2008-25
Converting Exsisting Homes to Rentals - Known as the FHA Buy and Bail - This is stated in Mortgagee Letter 2008-25, which is to prevent those that knowingly give false or misleading rental information/leases in which they will just let that property fall by the waste side and not make mortgage payments.
The borrower will now need to be able to have sufficient income to qualify for both mortgage payments. There are exceptions to this rule that relate to minimum loan to values and relocation's as well, so you need to cross reference these requirements to determine if you really do qualify.
Important Information : In all the cases listed above, if the borrower doesn’t meet these exceptions, then they can only obtain a FHA mortgage if :
- the homeowner pays off the current FHA loan in full or
- terminate ownership of that residence
A few things to remember - Not all lenders and or loan officers are on top of these current changes and or ask the appropriate questions when determining what you can qualify for when it comes to FHA Home Loans in general. Speak to a reputable loan officer and not one that tells you what you want to hear or sounds good.
NEW FHA LOAN CHANGES - 2010 FHA mortgage changes
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For more information on FHA loans, please go to this link. The FHA Expert
For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc