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Understanding the Exceptions to the FHA One-Time Loan Rule

When navigating the home buying process with an FHA loan, it's commonly understood that you can only have one FHA-insured mortgage at a time.

However, specific exceptions to this rule allow borrowers to qualify for an additional FHA loan under certain circumstances.

This guide is designed to demystify these exceptions, providing clear and concise explanations of the scenarios under which you may be eligible for another FHA-insured mortgage for a new principal residence.

Whether you're relocating for work, experiencing changes in family size, or adjusting co-borrowing arrangements, understanding these exceptions can be crucial in planning your homeownership journey.

Let's delve into the details of these exceptions and how they could apply to you.




Exception to FHA Limit on Mortgages - Infographic


FHA Loan Relocation Exception

When it comes to FHA-insured mortgages, the general rule is one to a customer—until life throws you a curveball that necessitates a move.

Recognizing the dynamic nature of modern lives, the Federal Housing Administration (FHA) has carved out an exception for those relocating, allowing them to obtain an additional FHA-insured mortgage for a new principal residence under certain conditions.

This section of our guide will focus solely on the relocation exception. The FHA's relocation exception is designed to accommodate borrowers who must move a significant distance due to employment-related reasons.

Here's what you need to know:


Eligibility Criteria


Employment-Related Move

The exception applies when you're relocating for a job. It's not for those who are moving on a whim or for personal preferences. The move must be employment-related, which implies a certain degree of necessity and urgency behind the relocation.


Distance Requirement

The new principal residence must be at least 100 miles from your current principal residence. This distance criterion underscores the FHA's acknowledgment that long-distance relocations are significant life events that might warrant purchasing another home.


Principal Residence

The property you're moving from and the one you're moving to must be intended as your principal residence. Investment properties or second homes do not qualify under this exception.


Key Considerations


AND Condition

It's essential to note the use of "AND" in the eligibility requirements. This means you must meet both the relocation due to employment and the distance criteria to qualify—satisfying just one is not enough.


Future Occupancy of the Original Home

If you eventually move back to the original area, the FHA does not require you to live in the original house. This offers flexibility for those whose relocations are not permanent.


Documentation and Verification

Be prepared to provide documentation verifying your employment-related move. This could include a letter from your employer or other official documents confirming your reason for relocation.


Benefits of the Relocation Exception


Maintaining Homeownership

This exception enables you to maintain homeownership in your new location without selling your original home first. It’s particularly beneficial if you need to move quickly for a new job and don’t have time to go through the selling process.


Market Conditions

If the housing market is down, and selling your current home would result in a loss, the relocation exception allows you to hold onto the property, perhaps renting it out until market conditions improve.


Flexibility for Returning Homeowners

If your relocation is not permanent—for example, if you're on a temporary assignment—the exception provides the flexibility to purchase a new primary residence without the obligation to sell your original property.


Increase in Family Size Exception

Homeownership is not a static experience; it evolves with life’s changes, one of the most common being changes in family size.

Whether it's due to the birth of children, the addition of elderly relatives, or any other situation that brings more people under your roof, your current home may no longer meet your needs.

Recognizing this, the FHA provides an exception to the rule limiting borrowers to one FHA-insured mortgage. This exception pertains to an increase in family size. In this section, we'll explore the specifics of this exception and what it entails for growing families.

This exception is specifically designed to aid those whose current home has become unsuitable due to an increase in the number of dependents.

Here's what you need to consider:


Eligibility Criteria


Legal Dependents

You must have an increase in legal dependents, which leads to your current property being unable to meet your family's needs. This could be due to having more children, taking in elderly family members, or similar situations that legally increase the size of your household.


Loan-to-Value (LTV) Ratio

The loan-to-value ratio on your current principal residence must be 75% or less, based on the outstanding mortgage balance or a current residential appraisal. This means the amount you owe on your current home must be less than 75% of its appraised value.


Key Considerations


AND Condition

Much like the relocation exception, both conditions must be met to qualify for this exception. An increase in family size alone is insufficient if the LTV ratio of your current home does not meet the specified threshold.


Proof of Increase in Family Size

You’ll need to provide documentation that proves your increase in family size. This documentation could include birth certificates, custody documents, or legal paperwork indicating guardianship.


Financial Prudence

The LTV requirement is a measure to ensure financial prudence, as it demonstrates that you have equity in your current home and are not simply seeking another FHA loan to address a negative financial situation.


Benefits of the Increase in Family Size Exception


Meeting Family Needs

This exception allows families to seek a new home that is more suitable for their expanded household without being forced first to sell their current home, which can be a significant relief during what is often a busy and stressful time.


Equity Growth

For homeowners who have been in their homes for a significant period, this LTV requirement can often be met through the natural appreciation of the property and the principal payments made on the mortgage over time.


Vacating a Jointly Owned Property Exception

The homeownership journey can take many paths, and one such path may involve vacating a property that is jointly owned.

Circumstances such as divorce, separation, or a change in cohabitation arrangements can necessitate one owner to leave the home.

The FHA understands this and provides an exception that allows an individual to obtain another FHA-insured mortgage after vacating a jointly owned property.

This section examines the Vacating a Jointly Owned Property Exception and its implications for borrowers who find themselves in such a situation.

This exception caters to borrowers who have co-borrowed an FHA-insured mortgage and are vacating the principal residence occupied by the co-borrower.

Here's a deeper look into the criteria and considerations:


Eligibility Criteria


Vacating the Property

The borrower vacating must have the intention of not returning to the property as their principal residence.


Co-Borrower Occupancy

The remaining occupant of the jointly owned property must be a co-borrower on the original FHA-insured mortgage.


Key Considerations


Intent Not to Return

It’s essential that the borrower vacating has no intention to return to the property. This isn't for temporary arrangements but for permanent changes in residence.


Remaining Occupant's Commitment

The co-borrower who remains in the home should be willing and able to maintain the mortgage payments and other obligations associated with the property.


Documentation of Change

Similar to other exceptions, proper documentation is critical. Legal papers such as a divorce decree or separation agreement may be necessary to establish the validity of the change in residence.


Non-Occupying Co-Borrower Exception

The FHA loan program is designed to assist those who occupy the homes they finance and those who support others in obtaining homeownership.

This brings us to the Non-Occupying Co-Borrower Exception, which caters to individuals who are co-borrowers on an FHA-insured mortgage but do not live in the property.

This exception allows them to obtain another FHA loan for their own principal residence. In this final section of our guide, we'll detail this exception and what it means for non-occupying co-borrowers.

A non-occupying co-borrower is liable on an FHA-insured mortgage but does not reside in the home that secures the loan. This situation often arises when helping a family member or close friend qualify for a mortgage by co-signing.

Here's the key information regarding this exception:


Eligibility Criteria


Existing FHA-Insured Mortgage

You must already be a co-borrower on an FHA-insured mortgage for a property you do not occupy.


Principal Residence Requirement

You want to purchase a new property that will serve as your principal residence.


Key Considerations


Independent Qualification

Despite being a co-borrower on another loan, you must independently qualify for the new FHA loan based on your creditworthiness and income.


Intent for the New Property

The new property must be intended as your principal residence. This exception does not apply if you're looking to invest in real estate or purchase a second home.


Impact on First Property

Being a non-occupying co-borrower on the first property does not exempt you from the responsibilities of that loan. You are still liable for the mortgage; any default can affect your credit.


FAQ's About The Exceptions to the FHA One-Time Loan Rule

Navigating the exceptions to FHA's one-loan policy can bring up a variety of questions. In this FAQ section, we address some of the nuanced inquiries that may arise as you explore your options within these exceptions.


Can I apply for an FHA loan exception if I've recently refinanced my current FHA loan?

The eligibility for an exception typically depends on the original purchase mortgage rather than a refinance. However, refinancing can affect your loan-to-value ratio, which is a factor in some exceptions, so it's best to consult an FHA-approved lender.


Does a promotion at my current job location qualify as an employment-related reason for the Relocation Exception?

No, the Relocation Exception is intended for physical relocation due to employment. A promotion without a change in work location wouldn't qualify.


For the Increase in Family Size Exception, do adopted or foster children count towards family size increase?

Yes, adopted and foster children are considered legal dependents and would contribute to an increase in family size for the exception.


If I vacate a jointly owned property, how soon can I apply for a new FHA loan under the Vacating a Jointly Owned Property Exception?

You can apply as soon as you've established that you have vacated the property and intend not to return, provided you meet the other FHA loan requirements.


What happens if my family size decreases after using the Increase in Family Size Exception?

A decrease in family size after securing an FHA loan under this exception does not affect the validity of your loan. The exception is based on your situation at the time of application.


How does being a non-occupying co-borrower affect my debt-to-income ratio for a new FHA loan application?

The mortgage for which you are a non-occupying co-borrower will be part of your debt obligations when calculating your debt-to-income ratio for a new loan.


Can I qualify for the Relocation Exception if I work remotely and choose to move to a different state?

The key requirement for the Relocation Exception is moving more than 100 miles away for employment-related reasons.

If remote work necessitates the move or is a condition of your employment, it may qualify, but this would require specific lender approval.


If I'm a non-occupying co-borrower for a relative, can I still get an FHA loan for a multi-family property I intend to live in?

Yes, as long as you meet the eligibility requirements for the Non-Occupying Co-Borrower Exception, the multi-family property will be your principal residence.


Can I rent out my original FHA-insured property After using the Increase in Family Size Exception?

Yes, you can rent out your original property if you have secured another FHA loan for a primary residence under this exception and meet any other applicable FHA guidelines.


For the Vacating a Jointly Owned Property Exception, does the co-borrower remaining in the property have to qualify for the mortgage independently after I leave?

No, the co-borrower remaining does not have to requalify independently. However, they must continue to meet the obligations of the existing mortgage.


Bottom Line

Understanding the exceptions to the FHA's general one-mortgage rule is essential for navigating the unique scenarios life may present as a homeowner.

Knowing these exceptions can open doors to new homeownership opportunities, whether it's due to relocation, an expanding family, a change in co-ownership arrangements, or being a non-occupying co-borrower.

The bottom line is that with the right information and guidance, borrowers can find pathways to secure an additional FHA-insured mortgage that aligns with their changing life circumstances, ensuring that their housing needs are met without compromising on FHA loans' benefits.

Always consult with an FHA-approved lender to discuss your situation and get the most current and relevant advice for your homeownership journey.

With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.

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