Your principal residence is the place you live a majority of the time. If you own more than one home, it’s the home you spend more time at throughout the year. FHA loans are only for primary residences. But, how does the FHA define it? They may look at it a little differently than you would expect.
The FHA’s Stance on Principal Residence
The FHA accepts the principal residence to be the place you spend most of your time. It’s the home you live in when you go to work and conduct your daily life. You cannot have two homes that qualify as your primary home. Only one home can meet this requirement.
For FHA loan purposes, you can only have one primary home. They will not insure funding on a second home. They will also not provide their guarantee for investment homes. This is the case no matter how many other mortgages you may have. Even if you don’t have an FHA loan now, you cannot use the FHA funding for any home but the one you plan to live in full-time.
The Exception to the Rule
Just like many other loan programs, the FHA does allow exceptions. There are only two circumstances where they apply though:
- Job relocation
- Increased family size
If you can prove that your new job (whether employer initiated or your own doing) is too far from your current home, it may be an exception. The FHA may allow you to keep your current home and secure FHA financing on another home. There are no concrete numbers regarding how far the new job must be to your current home, though. It’s on a case-by-case basis and depends on the lender’s input as well.
Increased family size is another exception to the rule. If your family has outgrown your current home, you may be able to secure FHA financing on another home. Again, this is up to the discretion of the FHA and your lender. It’s pretty self-explanatory, though.
Let’s say you have a 3-bedroom home that you bought with FHA financing. When you bought the home, it was just you and your spouse. Since then, you have had two children. The home still fits your needs, even if you feel like you are busting at the seams. As long as there are sleeping quarters for everyone and you have enough living space, this would not be an exception.
However, if your current home with FHA financing has 3 bedrooms and you have 5 kids after the fact, this may qualify. There probably is not enough room for every person to sleep or live comfortably. The FHA would likely consider this an exception.
Qualifying for Another FHA Loan
Keep in mind, even if you get the approval to secure FHA financing on another principal residence, you have to qualify for the loan. If you already went through the FHA process, you know what they except:
- A credit score of at least 580
- A down payment of 3.5%
- A debt ratio no higher than 31% on the front-end
- A debt ratio no higher than 43% on the back-end
Where it gets tricky is qualifying with the debt ratio. If you don’t sell your current home, you must qualify for the new FHA loan with your current mortgage and the new mortgage. The only way around this is if you have at least 25% equity in your current home. If so, you can use the rent you will charge your tenants as income. This could help lower your total debt ratio.
In general, FHA loans are only for a principal residence. However, there are exceptions to the rule. You can even have two FHA loans at one time, if you work it out right. However, keep in mind, this means paying for FHA mortgage insurance on two loans. It also means paying the upfront funding fee on the second loan.
Before you sign on the dotted line, consider the full impact of carrying two FHA loans. Think of the financial impact it will have on your monthly finances. Also, consider how you will maintain both homes, even if you rent the first home to tenants. You still have to keep the home in proper working condition.
If you can swing it, the FHA may allow you to tweak the definition of the principal residence. As always, though, check with your lender to see their thoughts on the situation.