Do you know an FHA Loan, might be your ticket to buy your second home? How? Let’s decipher. These are the mortgages where the government participates; which means they demand lower down payments and better credit score eligibility than the conventional mortgages.
But there’s a catch: there are specific requirements that your second home should be at least 1000 km or 100 miles away from your first home. Ready to dive in? But, can an FHA loan make this dream of owning a second home possible for you?
What is an FHA Loan?
Let us briefly recall what an FHA loan is, before discussing its application for second homes in detail: An FHA loan is a home loan with a guarantee offered by the FHA. It also enables those with poor credit ratings and little down payment to own houses and property. To learn more about FHA Loans, click here.
Can You Get an FHA Loan for a Second Home?
The short answer to this is YES, you can get an FHA loan to BUY SECOND home. Nonetheless, there are certain conditions that one has to fulfill. The FHA has evenly laid down some guidelines to make sure that the loan is well utilized.
Fha Loan Requirements For A Second Home
To qualify for an FHA loan on a second home, you’ll need to meet the following criteria:
Distance: Another requirement is that the dwelling referred to as your second home must be located not closer than 100 miles to the place where you reside. Sub-rule 2 This rule was designed to stop you from buying a property purely as an investment, without being able to live in it yourself.
Credit Score: The standard credit score requirement is at least 580 to enable one to access the 3.5% down payment. If the credit score ranks between 500 and 579, the candidate is eligible to make a down payment of 10% at least.
Mortgage Insurance: The basis of FHA loans is that the borrower needs to have mortgage insurance in case of default on the loan. This insurance comes in two forms: the former being paid at the time of purchase while the latter is paid on a pre-established frequency throughout the time of home ownership.
Down Payment: Even though FHA loans are largely characterized by their flexibility of not requiring the borrower to make a large down payment, the borrower is expected to make some down payment. The specific sum will depend on credit rating.
Income: Again, you will have to prove how you will generate enough cash to service the mortgage loans for the first and second homes.
| Requirement | Description |
| Minimum Distance | Your second home must be at least 100 miles away from your primary residence. |
| LTV Ratio | Your current property’s loan-to-value (LTV) ratio must be 75% or less. |
| Change in Living Situation | You have a legitimate reason for needing a second home, such as a relocation. |
| Credit Score | Your credit score must be 580 or higher. |
| Foreclosure/Bankruptcy History | You cannot have recent foreclosures or bankruptcies on your record. |
| Income and Employment | You need to demonstrate proof of consistent income and employment. |
FHA Loan Conditions for a Second Home
It is only possible to qualify for a second home FHA loan if you can justify the need to own the second home. Common scenarios include:
Job Relocation: If your new place of work is many miles away, (usually 100 or more miles) away from your current abode and one cannot consider commuting, then you may be eligible for an FHA loan for the second home.
Family Expansion: If the current home is no longer fit for the family, you can maybe qualify for a different FHA loan for a bigger home.
Divorce or Separation: If you planning to divorce or separate with the person who is a co-owner of the property, you may be eligible for an FHA loan for the new dwelling.
Cosigner Circumstances: However, there are special circumstances where if you cosigned in an FHA loan for a house you did not live in, qualify for an FHA loan to another home. Nonetheless, the requirements of the lender may differ, and therefore it is advisable to contact a lender.
Reasons to Consider an FHA Loan for a Second Home
An FHA loan can be a nice option for financing a second home for individuals who qualify for it.
Here are some reasons why:
- Lower Down Payment: In comparison to other normal loans, the FHA loans often come with a lower down payment and hence provide an option for saving for a second home.
- Potential Tax Benefits: Second home owning may have certain tax advantages which may include; tax relief on the interest on the second home mortgage as well as other property tax relief.
- More Lenient Credit Score Requirements: The credit scores among the FHA loans are more tolerant providing you the approval of the loan.
Are You Eligible for a Second Home FHA Loan?
To increase your chances of qualifying for an FHA loan on a second home, follow these tips:
- Improve Your Credit Score: It is recommended that one should aim at having a credit score of 580 or that of a standard credit score to be considered for the best offers.
- Save for a Down Payment: FHA loans come with low down payments, but it’s still a good idea to save as much as you can because it will result in lower FHA interest rates.
- Document Your Income: The applicants should also be willing to pay for both mortgages and ready to present any proof of income to the lender to prove that they can meet the expenses of buying such a property.
- Shop Around for Lenders: It is recommended to compare rates and terms between the chosen and other credit companies to get the most advantageous conditions.
Remember: It is possible to get FHA loans for second homes but it is advisable to plan carefully when looking to secure this kind of loan. It is advisable to discuss with a mortgage lender to know if this is the right option for you. We at Munshi.biz have solutions to all your problems. Get in touch with our experts to find the best-fit solutions for your needs.
