Question about eligibility for an FHA loan

[Zach Robertson]

Hello - I had a question about FHA loans. I currently own my primary home, bought with conventional financing. I also own a single family investment property, I used a HELOC against my primary residence plus some cash to buy the investment property, also with conventional financing. What I would like to do is buy another home using an FHA loan (because I am lacking cash to put 20% down), and rent out my primary residence, which would cash flow nicely. Can I use an FHA loan if I already have 2 mortgages? I live in Minnesota. Thank you

[Kevin Romines]

The other issue that you will run into is that the underwriter has to feel confident that you will truly occupy the home and that it makes sense for you to make this your new primary residence. If you are buying a smaller home than the one that you are in, you will have to justify why you are down sizing. 

Further, in order to count the rents from the home that you are living in, it must have 25% equity and you must have a signed lease agreement and have received the 1st months rent and deposit and can document all that. 

I had a borrower a year ago that was buying a 3 unit in Washington state using an FHA and they had a FHA loan on a property in Texas that they had recently made a rental so they could move to Washington State. They were forced to do an appraisal on the property in Texas to prove it had 25% equity. They also had to prove they had received the rents and deposit.

Yes it is possible to have 2 FHA loans out at the same time, but there are restrictions regarding this. If your debt ratio can take the debt of your existing mortgage along with the new purchase using FHA, without the rents being counted into your debt ratio, I would go that route. If you do, you wont have to prove you have 25% equity in your current primary residence via an appraisal, and you wont have to have the lease and the proof of receiving the payment and deposits. Other then that, easy peasy!!!

I hope this helps?