How Many FHA Loans Can You Have (And How to Qualify)

A Federal Housing Administration loan, or FHA loan, is an ideal financing option for people with low credit scores and those who can’t afford a large down payment. Provided by the government and issued by an approved lender, these home mortgage loans are very popular with families with limited income wishing to become homeowners, and with first-time homebuyers in general.

How to qualify for these loans, and how many can you have during your lifetime?

Let’s find out.

How Many FHA Loans Can You Have?

The general rule says that although you’re eligible to apply for multiple FHA loans throughout your lifetime, you can only have one loan active at a time. This rule prevents people from using the program to finance investment properties. 

However, there are a few exceptions to this rule, so you can have several FHA loans in certain cases. You can have more than one FHA loan if:

• You’re moving to an area further away from your current residence, or there are few affordable rental options available.
• You own a property with someone else but plan to buy a home alone while the other person plans to continue living in the current home (e.g., in the case of divorce). 
• You co-signed an FHA loan for another person and now want to buy your own home. 

FHA Loan Qualifications and Requirements

To qualify for the loan, you must take into consideration the following factors:

FICO Score and Down Payment 

FHA loans are available to qualified borrowers with credit scores as low as 580. Additionally, you can put down as little as 3.5% on your loan principal.

Borrowers with credit scores (between 500 and 579) can also qualify for an FHA loan, provided they put down a 10% down payment.

FHA home loans have more lenient credit standards than conventional loans. For example, most applicants need a credit score of 620 or higher to be eligible for a conventional mortgage. 

Also, the minimum down payment banks require can range between 3% and 20%, depending on how willing they are to lend you the money. 

Proof of a Steady Income Stream and Employment

A specific income amount doesn’t determine FHA loan eligibility. However, you must show the lender that you have a steady income stream.

To verify your income, you must present pay stubs, W-2 forms, bank statements, and tax returns to your lender.

In addition to that, you must:

• Have two active credit accounts.
• Be free of any outstanding debt from a previous FHA–insured loan or delinquent, tax-related debt. Judgments are also not allowed.
• Include cash gifts in your down payment calculation. These contributions can come from anyone, like a friend or family member. You must verify them with a written statement including the donor’s signature and date.

Debt-to-Income Ratios

The maximum DTI ratios for FHA loans are more forgiving than those of other mortgage types. The DTI ceiling for those who want to qualify for an FHA loan is set at 57%, whereas the maximum DTI ratio allowed for conventional loans is 50%.

That said, your monthly mortgage expenses (front-end DTI) shouldn’t exceed 31% of your salary, while your back-end DTI (all monthly debt payments combined) should be under 43%.

Borrower’s Primary Residence 

Borrowers must occupy the home they intend to purchase with an FHA loan. In other words, the property in question must be your primary residence, and you must have lived there for a minimum of one year. 

In addition, FHA loan requirements state that you must move into your new home within 60 days of closing on the property.

A few things, like military deployment or having to relocate for a job more than 50 miles away from your home, are exempt from the FHA’s occupancy rules. Other exceptions include divorce or an increase in family size.

Mortgage Insurance  

If you take out a conventional loan and can’t provide a down payment of 20%, you’ll most likely be required to have Private Mortgage Insurance. On the other hand, with FHA mortgages, you’ll be charged: 

• Up Front Mortgage Insurance Premium and 
• Annual MIP (Mortgage Insurance Premium).

Therefore, you’ll have to pay a 1.75% flat fee once you close your loan. However, you can incorporate this fee into the loan if you don’t have ready cash.

You’ll also need to pay for insurance every month. This percentage-based payment will be determined by several factors, including the loan’s term, amount, and Loan-to-Value ratio (LTV).

How to Get a Second FHA Loan

FHA loan rules allow borrowers to get a second loan even if they already own a home. There are several requirements you must meet to qualify for a second FHA loan:

• A credit score of at least 580
• No bankruptcies or foreclosures in the past few years
• Having a debt-to-income ratio under 50%
• Consistent income and employment
• Documentation that verifies you’re eligible for an exception to have a second FHA loan
• Proof you can afford both loans

Application Process

To apply for another FHA loan, you’ll need to do the following:

Find a Lender

You can find FHA loans through your local bank or credit union, mortgage brokers, and online lenders. If your credit score is on the lower end, try to improve it or find a lender who will work with you if your score is below 580.

Fill Out a Loan Application

Depending on the lender, you might have to fill out your loan application online, over the phone, or through email with a loan officer.

According to FHA loan guidelines, applicants must have a minimum credit score of 580 to qualify. In other words, lenders will assess your creditworthiness before giving you pre-approval or rate information.

Submitting all your loan applications within 45 days allows you to avoid multiple inquiries appearing on your credit report.

Provide Basic Personal Information and Property Details

FHA requirements include delivering some basic information about yourself and the property you’re buying, such as:

• Your first and last name
• Your Social Security Number
• A driver’s license or other acceptable state-ID
• Details about your income and employment history
• The purchase price and address of the property
• The amount of money you put down upfront

Regarding documentation, FHA mortgage lenders will ask you to deliver the following:

• The tax returns you filed for the past two years
• Your W-2 statements from the last two years
• Bank statements from the past 60 days
• Financial statements for other types of assets
• Your most recent pay stubs
• Proof of other sources of income
• Your employers’ names and addresses for the past two years
• If you’re self-employed, include your year-to-date profit and loss statement

FHA loan applicants should expect a 30- to 45-day window from application to closing.

Types of FHA Loans

Now that you know all about the FHA home loan requirements, whether it’s your first or second, let’s see what types of FHA loans are available. 

Home Equity Conversion Mortgage (HECM)

This type of loan allows homeowners aged 62 and older to cash in on the equity they’ve built up in their homes.

With HECM, the homeowner can choose to receive monthly payments, tap into a designated line of credit, or do both. Make sure not to confuse it with HELOC.

FHA Energy Efficient Mortgage

The EEM is designed to encourage homeowners to make energy-efficient home improvements. This can include adding new insulation, solar panels, or wind turbines.

Section 245(a) Loan

This FHA home loan is ideal for homebuyers with low incomes. It offers a reduced interest rate and monthly payments that increase as the borrower’s income rises.

FHA 203(k) Improvement Loan

An FHA 203(k) improvement loan is ideal if you want to buy a property that needs work. With this loan, you can finance the home’s purchase price plus the cost of repairs and renovations. 

FHA Loan Limits

As lovely as it may sound, FHA financing comes with a certain limit regarding the new home areas. 

The current FHA loan limit for low-cost areas is:

• $420,680 for a single-family home
• $538,650 for a duplex
• $651,050 for a triplex
• $809,150 for a fourplex

For high-cost areas, the 2022 limit is:

• $970,800 for a single-family home
• $1,243,050 for a duplex
• $1,502,475 for a triplex
• $1,867,275 for a fourplex

However, there are some exceptions. In locations such as Guam, the US Virgin Islands, Hawaii, and Alaska, FHA single-family home loan limits are set at $1,456,200.

Conclusion

So, let’s sum it all up. How many FHA loans can you have at one time? You can have more than one FHA loan in your lifetime, but you can only have one active at a time. Though, there are exceptions if you meet special qualifications. 

For example, you can take a second FHA loan if you’re relocating far from your current home or if you co-signed a loan for somebody in the past and now want to buy a home for yourself.