Can I qualify for an FHA Loan if I already have a conventional loan?

Question

Hello.

I am ready to buy another property and I thought I would qualify for an FHA Loan since I have a property under a conventional loan that I am renting out to my tenants, but people are telling me I do not qualify.

Do I not qualify for an FHA loan even though I am not living in that residence? I thought I could use the rents from the tenants I am receiving and use it towards the FHA loan possibly?

I live somewhere else, and that property is not my primary residence.

Can anyone share some feedback of why I do not qualify? Any suggestions on how I can qualify for an FHA Loan?

Albert Bui · Answer

The answer is yes you can have another FHA loan simultaneously (2 fha loans) if one of the 4 exceptions are met 1) you were a cosignor on another's FHA loan where there were multiple coborrowers, 2) family size increase and need to do so, 3) legal award or separation by court, 4) relocation due to employment.If you're also moving out of the FHA property due to one of the above to use rental income offset or 75% gross lease calculation you'll need 25% equity (buy another appraisal report) and you'll need to be 100+ miles away (100+ mile rule).There are ways to avoid the 100+ miles rule however you'll have to plan ahead.Also if the above property is 3-4 units you'll have FHA self sufficiency rule as well so plan your cards accordingly otherwise find yourself with triple stack of rules to pass.@Carlos Valencia@Matthew Kwan

Matthew Kwan · Answer

You can only use FHA to qualify as a primary residence with min 3.5% down. Are you trying to use it towards a single family or multifamily? Either as long you are living there you can still rent other units out however, if you are looing for triplex-fourplex then you would need to past the SS test (Self-sufficient test). @Albert Bui @Carlos Valencia

Albert Bui · Answer

Your issue stems from FHA 100 miles + rule thats easy to work around you just gotta work with a lender who knows the rules and can guide you to a desired result.

Like my prior reply and addition above, you can only use rental income offset if you're not leaving a current primary into a new purchase with FHA (so change up the context of your scenario). You're being forced to qualify for both conventional vacated property and the new FHA property in full with no rental income offset (hence the 100+ mile FHA rule) thats why you dont qualify.

So from a lender POV how I interpret that is you dont have enough personal or other sources of income to take a double hit from both mortgages so I would then figure out what is your qualifying income, how do we use rental income offset, and what steps are needed to do so. Sometimes if you wait till the last minute or 11th hour you can no longer do any more planning so make sure you resolve these issues ahead of time.

@Carlos Valencia

@Matthew Kwan

Sasha Mohammed · Answer

ahh then the 100 mile rule wont apply to you at all. but you should be able to use the rental income from the conventional-financed property based on how you've filed that rental income on your schedule E.

still, you can use the rental income from the other units on the purchase, so i'm not sure how your broker could tell you definitively you don't qualify without knowing what property and what rents the other tenants are paying. unless you're just suuuuper unrealistic with your purchase price vs existing income, or if your schedule E on your other house is filed at a loss.

Kristen L Garner · Answer

I don't know your full situation but there are ways around the 100 mile rule.  The 100 mile rule is only if you already have an FHA loan, which it doesn't sound like you do.  If you do, you can write a strong Letter Of Explanation outlining reasons for your move.  Rationale that I have seen successfully work for this: relocation for a new job, relocation to be closer to a current job, relocation to take care of elder family members, relocation for kids to go to a better school, relocation to a bigger or safer property.  Proving that your other residence has tenants by submitting leases is helpful too.

Albert Bui · Answer

that is one way to go about it and Ive field tested multiple ways to make it work but you'll need some time to plan ahead, if you're already in escrow to close then the above may be true however if you had 6 months ahead of time you could have avoided this entirely.

Josselyn Palma · Answer

I am trying to use it towards a multifamily.

I just want to make sure that I can still keep my single family home that I still have a Conventional Loan on. When I spoke with my Broker, she had mentioned that I did not qualify for an FHA loan since of the 100 mile rule. She mentioned that if I wanted to qualify for an FHA loan, that I would either need to sell my single family home that I have a Conventional Loan on or either buy a property 100 miles away from the single family home I have.

Again, I am renting out that single family home and I am living somewhere else.

Jevon Shaw · Answer

FHA loans are only for owner occupied properties. You do qualify for an FHA loan if you don’t already have one, but you’d have to live in the property

Jesse R Wien · Answer

I do not see any reason you have explained why you dont qualify for an FHA loan.  Happy to take a look!

Albert Bui · Answer

FHA 100 mile rule doesnt apple to only FHA to FHA loans, it applies any time a borrower leaves their primary residence currently and tries to use FHA to buy another primary residence.

Luckily the OP doesnt have a 100 mile rule situation because the property has been rented by tenants for over a year so its already classified as a rental on paper.

You can use the rents on your rental to offset your monthly conventional mortgage on that rental property. The rental income a lender will use is most likely taken from your tax returns. There are some cases where an exception is warranted to go back to the lease agreements. Depending on the numbers, one calculation might be better than another. I would have to look at that situation to see which options are available.

The issue of why you dont qualify is probably due to DTI or debt to income. So we'd have to look at the income to see where the DTI ratio is currently at, as is today and help you plan your next purchase going forward.

Can I qualify for an FHA Loan if I already have a conventional loan?

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