What Happens With an FHA Loan.... If You Move?

Question

Hey everyone!

I'm refinancing out of a land contract into a 3.5% down FHA loan, as I currently live in one side of a duplex.

I'm planning on living here for a while... but what happens if/when I decide to move?

If I get another place, what happens to my current FHA loan? Will I'll be able to qualify for another loan that's not FHA?

Would I potentially be able to qualify for a 203k loan in the future?

Andrew Postell · Answer

Account Closed I was surprised about how accurate you were on your info, good job.  I do have one correction though:

• Getting ANOTHER FHA loan - this is absolutely possible with FHA but they want reasons.  So if your family grew, and you outgrew your current home...that makes sense to the FHA and they would grant you a 2nd FHA loan..meaning, you DON'T have to refinance your current FHA loan.  Or if your job transfers you to another location (100 miles away or so)...then yeah, you need a new loan for a new home.  But if you are just wanting another FHA loan...then no, that's not what they are designed for.

You did commit to living in your property for 12 months, and that is on your loan paperwork that you signed.  Things do change but other loan types might want to know what you are leaving early if that applies.

Also, something to consider here...do you need the rental income from your current home to qualify for your next home?  If so, you would need to secure a lease on your current property BEFORE you could close on another.  Sometimes that's a little tricky if you are living there.  Oh, and if you do get ANOTHER FHA loan...AND need the rental income...then they will require 25% equity in the property you are vacating.  That is pretty tough if you just closed on this home with 3.5% down as a minimum.

Fannie Mae does have a renovation loan that I feel is better than the FHA 203K loan...but 5% is the minimum on that product.

Lot's to consider but feel free to ask anything additional if you need.  Thanks!

Will Fraser · Answer

Hi Account Closed!  The short answer is this:  if you moved out before the year requirement is fulfilled you could be subject to a penalty or worse, but there are also plenty of FHA approved “reasons you may have to move earlier than a year” so, as an administration, they’ve set it up to be pretty understanding.

The other part to this is getting the future loan.  IF you’ve fulfilled the requirements of the loan then getting a future loan other than FHA won’t be an issue (provided you otherwise qualify for it).  For this reason a 5% down conventional loan is a “next step” for many house-hackers who used their 3.5% down FHA loan first.

Getting a second FHA loan (of any sort) is not possible according to my understanding.  Lenders please jump in and correct this if I’m mistaken.

There is a 203k version of other loans (not FHA backed) I believe.  However, the simplest and usually the cheapest solution is to use cash (or cash equivalent) or a construction loan to purchase and renovate, then refinance onto a conventional loan at as close to 75% of post-renovation appraised value.

Andrew Postell · Answer

Account Closed I want to be very clear here...just "saying" that a family member moved in with you will not be enough.  They will ask for documentation from that family member:  bank statements, driver's license, etc. to verify their address is now your address.  This will 100% be something that they will want proof of.  Just like with your job transfer - they will call the job to verify.  All of this will need hard proof.

Now, let's say it all works out, you are correct - you do not have to refinance your first FHA loan. It can stay in place.

The Fannie Mae Homestyle loan is the renovation loan. Now with a 2 unit property your down payment will be 15% and with a 3-4 unit your downpayment will be 25% with that loan type.  So yes, the 203K can be difficult but 3.5% down on a 4 unit property is a HUGE advantage.  Hope this helps!

Jaren Barnes · Answer

@Andrew Postell Makes a lot of sense! Thank you so much for all your insights here.

My sister-in-law is immigrating from Kazakhstan sometime next year, so we'll have proof from USCIS 😂Don't know if you can get more legit than that! I'm not afraid of the required paper trail (and I know they might not approve it, even still - but at least I know there is a fighting chance!).

Jaren Barnes · Answer

@Andrew Postell Wow! Great insight there - So if I get an FHA loan here and say I have family members that move in to live with us, and therefore we need more room... that might work?

Also, in the case I got approved for a second FHA loan, the first would remain in place, correct? I wouldn't be forced to refinance or anything as long as my reasoning was approved?

I don't believe I would need the rental income to qualify for the next loan.

Now you said something that really caught my attention - can you expand on that Fannie Mae renovation loan you recommend?

If and when I move, my plan is to look for a 4 unit that needs some TLC, convert two units into one, that my family and I live in and then rent out the other two (take a 4 unit and convert it into a 3 unit).

I wouldn't mind 5% down - I hear 203K loans are miserable to work with!

Jaren Barnes · Answer

@Will Fraser thanks so much for the insight here!

This confirmed a lot of what I thought was true but I really appreciate you confirming it!

What Happens With an FHA Loan.... If You Move?

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