by Jonathan Langsdorf, Demand Media
FHA loans are mortgages insured by the Federal Housing Administration. The Department of Housing and Urban Development website states that FHA insurance allows home buyers to get loans with low down payments and easy credit qualification. HUD and FHA regulations allow someone to have two insured loans at the same time only under specific circumstances.
The insured mortgage program provided by the FHA is designed to promote home ownership for owner-occupied residences. FHA policies are designed to prevent home buyers from using FHA-insured loans to finance investment properties. To prevent someone from using an FHA loan to finance an investment property, the FHA policy limits someone to one loan at a time. The exceptions allow a homeowner to get a second FHA loan to finance their primary residence and still have an existing FHA-insured mortgage.
Exceptions for Divorced Persons and Co-signers
Exceptions to the single-loan policy may apply if the person looking for a second FHA loan is a co-borrower on an existing loan. The FHA handbook mentions two circumstances where an exception can be made. If a borrower is divorced and the ex-spouse is living in the couple's insured mortgage home, the borrower can get another FHA-insured loan for a new primary residence. The other exception involves an individual who assisted a family member qualify for a FHA loan as a co-signer on the loan and then applies for a FHA mortgage for his own residence.
A homeowner who relocates can keep the home with the FHA mortgage and apply for a second FHA mortgage on a home in the new location. The new area of residency must be outside a reasonable commuting distance from the first, financed home. According to the FHA handbook, the move does not have to be an employer-required move to qualify for the exception.
Exception for Family Size
A growing family can allow a homeowner to take advantage of another exception to the single-FHA rule. If the homeowner's family has outgrown the current home, he can buy a larger home, finance it through the FHA program and keep the first home as an investment property. The homeowner must provide evidence of the family size increase and that the current home is too small. This exception also requires that the loan to value ratio on the first home to be 75 percent or less.
Rental Property Requirements
The exceptions to the single-FHA-loan rule are not automatic. The FHA will look at the specific circumstances of the request for the second loan, including the time the homeowner has lived in the first residence. Qualifying for a second FHA mortgage and turning the first into a rental property requires a signed rental agreement and proof of enough financial reserves to make the mortgage payment for 6 to 12 months.