FHA Mortgage

[Drew Poniewaz]

I have an FHA loan on my private residence. I would like to buy a new private residence and rent out my first house as a rental property. Is there anyway around the FHA loan and renting my original home? Can the FHA loan be transferred to my new property and get a conventional loan on my original property?

[Albert Bui]

Originally posted by @Brie Schmidt:

@Drew Poniewaz - How much equity do you have in the property? Enough to refi conventional with a 80% LTV? If not, you can still get a second FHA loan if you have any of these exemptions:

We do not object to homebuyers using FHA mortgage insurance more than once if compatible with the homebuyer's needs and resources as follows:

A. Relocations. If the borrower is relocating and re-establishing residency in another area not within reasonable commuting distance from the current principal residence, the borrower may obtain another mortgage using FHA insured financing and is not required to sell the existing property covered by an FHA insured mortgage. The relocation need not be employer mandated to qualify for this exception. Further, if the borrower returns to an area where he or she owns a property with an FHA insured mortgage, it is not required that the borrower re-establish primary residency in that property in order to be eligible for another FHA insured mortgage.

B. Increase in Family Size. The borrower may be permitted to obtain another home with an FHA insured mortgage if the number of legal dependents increases to the point that the present house no longer meets the family's needs. The borrower must provide satisfactory evidence of the increase in dependents and the property's failure to meet the family's needs. The borrower also must pay down the outstanding FHA mortgage (secondary liens do not need to be paid off or paid down) on the present property to a 75 percent or lower loan to value (LTV) ratio. A current residential appraisal must be used to determine LTV compliance. Tax assessments, market analyses by real estate brokers, etc., are not acceptable as proof of LTV compliance.

C. Vacating a Jointly Owned Property. If the borrower is vacating a residence that will remain occupied by a co-borrower, the borrower is permitted to obtain another FHA insured mortgage. Acceptable situations include instances of divorce, after which the vacating ex-spouse will purchase a new home, or one of the co-borrowers will vacate the existing property.

D. Non-Occupying Co-Borrower. A non-occupying co-borrower on property being purchased with an FHA insured mortgage as a principal residence by other family members may have a joint interest in that property as well as in a principal residence of their own with an FHA insured mortgage. (See HUD Handbook 4155.1 for additional information). Under no circumstances may investors use the exceptions described above to circumvent FHA's ban on loans to private investors and acquire rental properties through purportedly purchasing "principal residences".

 You are better than most loan officers Brie lol! I am hiring for IL, want to be an originator ? =)

The above is true.

He can refinance his primary into conventional to as high as 95% LTV with no mortgage insurance if structured correctly so it depends on appraisal values in the area or you can use one of the 4 FHA exclusions above to use a second primary home through FHA.

I believe the conventional refi route is easier and a chance to potentially remove the onerous FHA monthly MI as well however its case by case on each loan scenario.

Another option if there is enough equity is I can refinance the current loan into a 80/10/10 with 80% first loan, 10% second home equity line of credit, and 10% equity (if there isnt much equity) this also yields a no monthly mortgage insurance scenario since the first loan is 80% LTV or less.

The down side is to use rental income on the new home purchase from your current home will require documentation of equity in the current home of around 25-30%. There are ways around the rules of documenting equity to use rental income to qualify but that is a whole different blog response. 

If there is adequate income to service both mortgage payments than the issue of using rental income to qualify will be a moot point.