The FHA has some pretty flexible guidelines for allowing two concurrent FHA loans. Many people use the FHA mortgage for it's very liberal down payment requirement of 3.5%. Though they will allow it, you must meet certain criteria and have one of the reason below to do it. Hud has issued the following guidelines:
- Increase in family size – There must be an increase in family size in which their current house can’t support the new family member(s). You will have to prove the increase. Also, you must have 25 percent equity in your current home or pay it down to 75% LTV (loan-to-value). An FHA approved appraiser must be used to determine such new value.
- Relocation – If the borrower is relocating and it is established that they aren’t in reasonable distance from their current property. Keeping in mind that reasonable can be defined differently from any lender.
Note – If that borrower(s) returns back to the same area, they are not required to re-establish residency in that property in order to have another FHA insured mortgage.
- Vacating a jointly owned property – A borrower my leave a property and be eligible for another FHA loan if the co-borrower is to stay in the same property that is being vacated.
A good example of this is because of a divorce and that the vacating spouse needs to buy a new home.
- Non-Occupying co-borrower – If someone previousily co-signed for a family member or relative while using a FHA loan. This type of FHA loan is called a non-occupant co-borrower loan. This borrower would still be eligible to purchase their own home using a FHA mortgage.
If you do not meet at least one of these criteria, it will not be approved by your lender because the FHA will not insure the loan. Contact your mortgage lender to find an acceptable alternative. For instance, you may qualify for a VA mortgage or a conforming mortgage with 3% down. There will be a lot of weight given to how long the original home has been owned and moving must make sense to the underwriter. Additionally, if it appears to the underwriter that the loan is being used to build a rental home portfolio, the mortgage will likely be denied.