FHA loan stands for Federal Housing Administration, but many mistake it for First Home Application home. The reason is because this type of loan is usually used by first home buyers. This loan is a great choice for people with poor credit or without the necessary funds for a down payment. Let’s go over the basics of this loan, it may be the best way to get started on your real estate portfolio. 

 

Review & Benefits

FHA loans are mortgages insured by the Federal Housing Administration and provide an option for borrowers who want a low down payment. These government backed loans require a down payment of 3.5% of the property’s final purchase price if your FICO score is 580 or higher. 

 

Limitations for FHA Loans

 

For Primary Residence Only

This loan type can only be used to finance the purchase of your primary residence, not a second home or investment property. 

 

Only one FHA loan at a time, usually

You can take out an FHA loan more than once, but you can not have multiple at one time… usually. The FHA does not want this program to be used for investment properties, rather fulltime homes. 

Acceptable reasons for multiple FHA loans

Now there are exceptions to the limitations on FHA loans. But be aware that a lower down payment entry still leaves you with the responsibility of multiple mortgages. 

 

Relocating

If you are relocating, and your new community is not a reasonable distance from your current primary residence you may qualify for another FHA loan. 

 

Divorce

You can qualify for a second FHA loan if you are getting a divorce where you are moving out. If there is the situation where you are moving out of a house with a shared co-borrower and ready to buy another home you can get a second FHA mortgage.

 

Co-Signing

Co-signing a mortgage with someone close can allow you to qualify for two FHA loans. In this example you already have an existing FHA loan, and the new loan is also an FHA loan. You both carry the responsibility to make the payments for this loan. 

 

Qualifying for Multiple FHA Loans

You still need to be able to pay for both loans and have the debt to income ratio to support it. Your total monthly debts including the mortgages should consume no more than 43% of your gross monthly income. 

You also need to have a good FICO score higher than 580 to qualify for a down payment of 3.5%. If less than 580 and more than 500 you’ll need  10%

Along with the security deposit, lenders may want to see that you have enough savings in your bank account to cover both mortgage payments.

 

A great option for first time home buyers, this loan does have its restrictions but a lot of pros to get started purchasing properties. Keep looking to see what other financing options may be available to you.