How Many FHA Loans Can You Have?

FHA loans are one of the most common types of home loans, especially for first-time homebuyers. 

An FHA loan is a mortgage insured by the Federal Housing Administration (FHA). FHA loans are designed to help lower-income and first-time homebuyers by allowing them to purchase with lower down payments and less stringent credit requirements.

These loans make buying real estate more accessible for more buyers, but how many FHA loans can you have at a time?

Can You Have Two or More FHA Loans at Once?

FHA loans are government-insured loans popular among first-time homebuyers due to their more accessible terms and support in buying a home. While these loans are an excellent tool for purchasing a primary residence, the FHA generally restricts borrowers to having one FHA loan at a time.

This rule is rooted in the agency’s goal to support homeownership among those who need financial assistance the most and not to facilitate real estate investment portfolios. This approach helps maintain the program’s integrity and ensures it serves those who need it most.

The FHA aims to promote equitable distribution of government-assisted loan benefits and prevent the misuse of FHA loans for investment purposes. If property owners could have more than one FHA loan, there could be insufficient funds available to assist genuine homeowners.

There are specific exceptions to this rule, but they are limited and apply under certain conditions. These scenarios include significant life changes such as a long-distance relocation for employment or changes in family size that necessitate an upgrade in living arrangements. To qualify for these exceptions, borrowers must provide adequate documentation to prove their circumstances.

When Can You Get Multiple FHA Loans

FHA loans are meant for homebuyers who intend to live in their property as a primary residence, so you can typically only have one FHA loan at a time. However, there are exceptions when homeowners can have multiple FHA loans.

Here are some reasons that the FHA would allow a borrower to buy a second home with an FHA loan:

Relocation For Employment 

If you own a home with an FHA loan and your work requires you to relocate from your current residence, the FHA could allow you to purchase another property with an FHA loan.

Borrowers are allowed to have two FHA loans so that they can continue owning their previous property and complete a home purchase close to their new work location. The borrower will have to prove that they have the debt-to-income ratio to support support the mortgage payments.

Increase in Family Size

When a borrower’s family size increases significantly, they may find that their current home no longer meets their needs.

In such cases, the FHA allows the buyer to keep their first FHA loan and buy a larger home with a second FHA loan, provided the borrower proves that their current living space is insufficient due to the increase in family size. The borrower can then turn their previous home into a rental property.

Cosigning an FHA Loan

If you already own a home with an existing FHA loan, you can still cosign a second FHA loan for another primary borrower, such as a family member who will live in the home. This situation recognizes the need to support family members in purchasing their own homes without penalizing the cosigner.

By cosigning for a family member, you can help them buy a house to support their debt-to-income ratio or credit score. Cosigning a loan means you agree to take full responsibility for making mortgage payments with the primary borrower.

You Were a Co-borrower for Someone Else’s FHA Loan

Similar to being a cosigner, if you were a co-borrower on an FHA loan primarily for another person’s benefit and did not occupy the house, you may qualify for a second FHA loan for your own primary residence.

You will need to provide documentation that proves that the first FHA mortgage is the primary residency of the other borrower.

Leaving a Jointly-Owned Property, Such as During a Divorce

Couples who purchase a home with an FHA loan don’t always stay in the property together. If you jointly purchased a home with another borrower and are no longer going to stay living property, whether due to a divorce or other life change, you can get a second FHA loan. 

The FHA acknowledges that living situations change and does not penalize someone’s ability to buy a home when leaving their previous primary residence. In these circumstances, the borrower could end up with two FHA loans.

Others, as Specified by HUD Guidelines

There are other less common scenarios defined under HUD guidelines where borrowers may be allowed to take on additional FHA loans. 

These are typically case-specific and require individual approval from an FHA lender, involving detailed documentation and justification for the exception.

Application Process for Multiple FHA Loans

In addition to providing general eligibility documentation for an FHA mortgage, like tax returns, W-2s, and bank statements, you’ll need to provide additional documents if you plan to have two FHA loans.

These documents should prove that you are eligible for the exemption.

Examples of the proof you will need to depend on the exception:

• Increase in Family Size: Birth certificates or legal documents indicating adoption or custody changes that prove the family has grown beyond the capacity of the current home.
• Relocation for Employment: A letter from the employer stating the job relocation, the distance from the current home, and the necessity for moving.
• Cosigning an FHA Loan: Documentation proving that another primary borrower will be occupying the home and that you are merely a non-occupying co-borrower.
• Co-borrower on Another FHA Loan: Proof that the primary residence of the main borrower is the property initially financed, and you are not the occupant.
• Leaving a Jointly-Owned Property: Legal documents that show the change in residence, such as a divorce decree or separation agreement.

To apply for a second FHA loan, you’ll need to work with FHA-approved lenders. They evaluate if your reasons and documentation meet the FHA’s criteria for an exception to the rule against multiple FHA loans.

Lenders will verify all provided documents and may require additional proof to ensure that all information is accurate and fulfills FHA requirements. Once you complete their process, they will approve the new FHA loan.

Implications of Having Multiple FHA Loans

Having multiple FHA loans requires managing the expenses and ownership requirements of multiple homes, just as it would for those with conventional loans. Holding multiple mortgages increases your overall financial burden, impacting your ability to allocate funds for other financial goals, such as retirement funds or emergency savings.

The biggest risk of many FHA loans is that they increase your risk of default. For example, if you keep your first FHA loan on an investment property, you’re still responsible for the mortgage payments even if your tenant stops paying rent.

If your financial circumstances change, the payment requirements can quickly become a burden. Two mortgage payments can be difficult to maintain for an extended period, especially for those who qualify for FHA loans.

Defaulting on an FHA loan can have serious consequences, including damage to your credit score and loss of the home through foreclosure.

Alternative Options to Multiple FHA Loans

Just because you can get more than one FHA loan doesn’t necessarily mean it’s the right decision. Some alternatives to two FHA loans include:

• Selling your current home, so you’re not responsible for two mortgage payments.
• Finance your current loan into a conventional home loan.
• Apply for a conventional mortgage with a larger down payment to avoid mortgage insurance.
• Use a VA loan program if you are eligible, allowing you to avoid mortgage insurance.
• Apply for a USDA loan if the property is eligible.

When deciding on the right type of mortgage, FHA borrowers often have other finance options, such as conventional loans. The best option for them will depend on their down payment amount, credit scores, risk tolerance, and what mortgage lenders can offer.

Ask a Professional About FHA Loans

Before getting multiple FHA mortgages, it’s best to consult with an FHA lender. They will help evaluate your monthly gross income, help you define your eligibility, and outline the pros and cons of two FHA mortgages.

If you’re contemplating multiple FHA loans or need tailored advice on your mortgage options, visit FastExpert today. Connect with top mortgage experts who can provide the insights and support you need to make the best decision for your housing and financial future.