Hurdles trying to obtain FHA loan in MA

[Nick Miano]

Hello,

I live in Massachusetts and currently have a loan out on my primary residence which is a 2 bedroom condo. I recently applied to get pre-approved for an FHA loan to purchase a multi-family home which I was going to move into as my new primary residence. The loan was denied because of the below clause:

(b) FHA-Insured Mortgages on Principal Residences

FHA will not insure more than one Property as a Principal Residence for any Borrower, except as noted below. FHA will not insure a Mortgage if it is determined that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining Investment Properties, even if the Property to be insured will be the only one owned using FHA mortgage insurance

I know a lot of people use FHA for multi-family but is it always the first loan they take out? Has anyone else ran into this hurdle? Any way I can still use an FHA loan without paying off the entirety of my current loan first? Is this something lender specific?

Thanks!

[Katherine Serrell]

So this is tricky. I am living in my 3rd househack now I ran into this as well more than once. Basically to make someone believe you are not trying to use the FHA loan "as a vehicle for obtaining investment properties" you have to have a "jump" i.e. the underwriters ask themselves "Why would someone want to buy a not-so-amazing quadplex in a not-so-amazing area when they already own a perfectly good, updated 2 bedroom condo in a great area close to work?" In my experience, this is also true for other types of financing for primary residences.

For this reason, many people start with a multifamily home then "jump" to a better quality one in a better area or to a townhome, small single family home, etc. Then, the next "jump" might be a larger single family home or a single family home with a garage, a single family home walking distance from work, a home with a backyard etc etc. 

You basically just have to be able to justify the move with something tangible.  

Your options are:

1. Buy something that is a "jump" and househack that ..so in your case, buy a single family or a townhome.

2. Refiance your condo into a commercial loan or investment property loan

3. Call, call, and call lenders until you find someone who thinks they can get this through underwriting. In my experience, its very unlikely.