FHA financing- Is this true?

Financing, Hard Money Lenders, Private Money
1

I just closed on my first property via a FHA 203K loan. The property is a large four family home in which I will live in one of the units. I read on this board that one can own a total of 4 FHA financed properties. Recently, I attended a landlord class in which the teacher mentioned that if a person owner occupied a 4 family home, they could move to a 3, 2, or single family home with FHA financing. It is my understanding is that the move would have to be to a home with equal or lesser units? Is this true? In theory I could go from my 4 family to a 3 family then to a 2 family, then to a single family all with FHA financing? Or in an extreme case could I go 4-4-4-4? Thanks.

jfpen

2

No this is not true. You are limited to one FHA loan at a time unless you can meet various guidelines such as job transfer, increase in family size so you need a bigger house, etc… But just wanting to move and get a different house is not just a reason that is going to get our an FHA loan. Not to mention they have guidelines in place such as equity and reserve requirements that you have to meet to qualify for a second FHA loan. Hope this helps.

3

I think you are confused.

The four property rule is a Fannie Mae (not FHA) rule. Lenders make loans and then sell them to Fannie Mae. Fannie’s 4 property rule says that Fannie Mae will not purchase a non-owner occupied investment loan if the borrower already has four or more financed properties. Lenders who sell to Fannie Mae will not originate a new investment loan if the loan can not be sold to Fannie Mae. Financing to purchase your primary residence or a second home is exempt from the 4 property rule.

A property with one to four dwelling units qualifies for a residential mortgage loan to include FHA financing. There is no requirement to downsize each time to qualify for new FHA financing.

You can only have one FHA loan outstanding at a time. FHA loans are given to owner occupants only. When you sell your FHA financed property and move to another primary residence, you can use FHA financing to buy your next home provided at least two years has elapsed since you got your previous FHA loan.

4

Thanks for the clarification. I needed to have 6 months PITI in reserve for the loan I have now. I thought if it were possible it could be a good wealth building strategy.

Thanks, JP

5

Actually, there is a way to get more than one FHA loan. According to FHA terms on most of their loan programs, the O/O must live in the property for 3 of the next 5 years. Once the O/O satisfies this requirement, they can obtain another loan for a new primary residence. In other words, you can (in many situations) buy a property and fix it up, then in 3-5 years buy a new property and move into it, keeping the old loan while getting a new FHA. This can also be done (even more easily) through VA loan programs.

BTW, investors can also get VA loans when buying VA owned-homes. These loans always have great terms. And you can buy as many as you can qualify for.

My first portfolio of properties I built up this way while in the military. Go to a new duty station, buy a house on VA/FHA, fix it up, turn it to a rental when move to a new duty station and start over again. At one time I had three VA and two FHA loans outstanding at the same time on different properties.

6

After reading Salverston’s response, I wondered if there were exceptions to the one FHA loan rule. As I interpret my readings, one outstanding FHA loan per customer is the general rule. However, there are exceptions, such as job relocation outside a reasonable commuting distance or increase in family size, that require the homeower to move into another primary residence before the former home can be sold or refinanced. Under these extenuating circumstances, the homeowner is permitted to turn the previous home into a rental, and still obtain FHA financing to purchase a replacement home.

The change in family size must require the homeowner to trade up, not downsize. Also, the first FHA-insured loan must have a 75% (or less) loan-to-value with the value established by a current real estate appraisal.

Reference: HUD Handbook 4155.1, Rev-4, CHG-1, Paragraph 1-2A and Paragraph 1-2B

I only did a cursory review, but I did not find a specific reference to a limit on the number of FHA loans a borrower can have. Since the HUD Handbook only references a “first” and “second” FHA loan, the implication is that a borrower is limited to two outstanding FHA loans and there must be extenuating circumstances to obtain the second FHA loan without paying off the first loan.

It is true that any investor (no need to be a veteran) can use VA vendee financing (up to 95% LTV in my area) to purchase a VA REO and the number of vendee loans an investor can get is only limited by his creditworthiness. If the VA REO property is to be owner-occupied, 100% vendee financing is available. Vendee loans have no PMI requirement.

However, if a veteran is using his VA loan entitlement, the property must be owner occupied. If the veteran wants to use his entitlement to purchase a second primary residence, the first VA loan must be paid off. 100% financing is available to veterans using their loan entitlement. Any acceptable property can be purchased, it does not have to be a VA REO.

In rare instances, a veteran may have unused entitlement remaining from his first VA loan. The unused entitlement may be used to obtain 100% financing (up to the limit of his entitlement) for a second primary residence with no requirement to pay off the first VA loan.