With low down payments, low interest rates, and less stringent credit score requirements, FHA loans are an attractive option for many first-time home buyers. But what if you’re ready to upgrade? Can second-time homebuyers qualify for an FHA loan? Here’s what you need to know.
When Can Second Time Homebuyers Qualify for an FHA Loan?
You Meet Credit and Down Payment Requirements
Just like first-time homebuyers, second-time homebuyers can qualify for an FHA loan only if they meet credit and down payment requirements. If you’re a second-time homebuyer looking for a forever home, there are no additional requirements and you’re not penalized for being a second-time homebuyer.
You’re Buying a New Home To Live In
If you’re moving into a bigger home or moving to change locations, you’re in luck. An FHA loan is a good option for move-up buyers with a need to change homes. If you are moving to be closer to a new job, or you are moving because your family has grown, you may be able to have two FHA mortgages at the same time. If you don’t want to manage a second mortgage, you can coordinate your home sale to close your first FHA mortgage and take on another in a short period of time.
You’re Not Buying a Vacation Home
The FHA allows you to take out a second loan for a home that is closer to your workplace, but you cannot take out a second loan just for a vacation home. However, you can use a traditional loan to purchase a vacation home while paying off the FHA loan on your primary residence.
You’re Not Buying an Investment Property
Generally, FHA loans aren’t permitted for a property you don’t plan to live in. You must occupy the home within 60 days of closing, and you must live in the home for at least one year. Once these requirements are met, however, you can rent out the property and use a traditional loan to purchase another home if you choose. You may also rent a portion of the property at any time to help cover the costs or to make extra income, though you are still responsible for the entirety of the loan and you must prove you can make the payments yourself beforehand.
You Haven’t Had a Foreclosure, Default or Bankruptcy Recently
If your first home was foreclosed or you declared bankruptcy recently, it’s not impossible to get an FHA loan, but it is more difficult. You’ll have to wait at least 3 years after the foreclosure or bankruptcy, and your credit score will have to meet minimum requirements. Additionally, if you’ve defaulted on any type of federal loan, including a small business loan or student loan, among others, you’ll need to resolve it before you can use an FHA loan, regardless of whether you’re a first-time or second-time homebuyer. If you’ve resolved these issues, get pre-approval before home shopping to make the process easier.
If You’re a Co-Borrower
A second-time home buyer can qualify for an FHA loan if they co-borrowed the first loan with someone else. This provision is often used in cases of separation or divorce. Ownership of the first home may be settled in court or through an agreement, but the occupant moving out can use an FHA loan to purchase a second home if they choose.
Though many first-time homebuyers use them, second-time home buyers can qualify for FHA loans too. In some cases, the second-time homebuyers may even be able to use two FHA loans at the same time. Regardless of your situation, always budget carefully and make sure you can take on the payments before starting an FHA loan.
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