Owning Multiple Homes

Owning Multiple Homes

Author Michael Vanella - 03/14/2020

If you are wanting to buy a home, and already own one, there are different rules, requirements, and restrictions that are in place for each kind of loan program. Read on to find out the ins and outs of owning multiple homes for conventional, FHA, USDA, and VA home loans.

Conventional Home Loans

If you currently own your home and have a conventional home loan, and you are wanting to buy a new home before selling your old one, you can look into doing another conventional home loan. If you plan on selling your current home in the near future, make sure your lender knows. That way they can underwrite your loan file accordingly. They will have to make sure you still qualify for the new home loan with both payments being counted against you in your DTI (debt-to-income ratio). You will have to certify that for the new home loan, you will be occupying that home as your primary residence. Thus, moving out of your old home that was your previous primary residence. If you don’t want to sell your current home, or you want to start renting it out as an investment property, that is also a possibility with a conventional home loan.

For investment properties, Fannie Mae limits you to 10 properties with conventional home loans. For each loan that isn’t your primary residence, you will disclose to your lender that you are purchasing the property as either a second home, or an investment property. A second home is one that you intend to occupy for some portion of the year. This can be sporadically or all at once. An investment property is one that you will not occupy at all, but rather rent out to tenants for profit. You can have multiple conventional home loans at a time, but for each new one the requirements tend to become stricter. You usually need to have a good credit score, and a qualifying DTI with all of the payments counting against you.

FHA Home Loans

If you currently own your home and have an FHA home loan, you typically cannot finance another FHA home loans until the first one is paid off. However, there are some exceptions to this rule. If you can prove that you meet an extenuating circumstance as defined by HUD, you can try to qualify for a second FHA home loan. One exception would be if your employer relocates you, and your commute is now going to be unreasonable to your current home. Unreasonable is usually defined by most lenders as an hour or more. Another exception would be if your family size has grown significantly since you purchased your current home. You would have to prove that the size of your family is now too large to fit comfortably in the home you are in. An example of this could be a 3-bedroom home that was housing only 2 people when you got the loan, and now your family has grown to 8 people. You would possibly be able to try and get another FHA home loan.

Even if you can prove that you meet one of the circumstances listed above, you also have to qualify with both home loan payments counting against you in your DTI. If you have over 25% equity in the first property, you can try to use rental income (if you now plan to rent that property out) to qualify as well. If you simply cannot qualify for another FHA loan program while keeping your current one, you can always try to get a conventional home loan instead. They will require a little higher credit score, and sometimes a higher down payment as well. But it could serve as an alternative to having 2 FHA home loans. You can also look into refinancing your current FHA home loan to a conventional loan. That would make it possible to then try and qualify for an FHA mortgage again on a new property, without any extenuating circumstances needed.

USDA Home Loans

If you currently own your home and have a USDA home loan, there are some scenarios that would allow you to purchase another home with another USDA home loan. You can’t take out a USDA loan for an investment property or second home. So the first requirement is that you would have to plan on occupying the new property as your primary residence through the entirety of the loan. Your current USDA home loan also can’t be a Section 502 (a kind of USDA loan designed to serve those with low or modest income, who could not obtain conventional financing). It also can’t be a Section 504 (a kind of USDA loan for home repairs).

You would also have to qualify with both mortgage payments counted against you in your DTI. And, similar to FHA, you would have to prove to USDA that your current home no longer adequately meets your needs. To do this, you would have to document that you meet one of these scenarios: you are upgrading from a manufactured home not on a permanent foundation, your home is overcrowded (this is usually defined as more than 1.5 people per room), you are relocating, or you have a disabled household member that the home is not adequately equipped to accommodate. If you meet the above requirements, you may qualify for a second USDA home loans without having to sell your first.

VA Home Loans

If you currently have a VA home loan, you are able to use your VA benefits again and again to obtain another VA loan once the first is paid off. In between each loan, you have to have your entitlement restored, which happens when the previous loan is paid off. The typical amount of entitlement a VA-eligible borrower will have available to them is $424,100. If that isn’t all used on 1 home loan, then there are scenarios that would allow a borrower to obtain 2 VA home loans at once. You can’t go over your entitlement amount. You will still have to qualify with both mortgage payments counted against you in your DTI, as well as the other VA-specific credit and income requirements. Your lender can run through different scenarios with you. If you think that you still have enough entitlement and are wanting to get a second VA mortgage loan while also keeping your first, they will let you know if you qualify.

Above, we have highlighted the key requirements of having multiple mortgage loans of the same type at the same time. It is possible to have multiple conventional, FHA, USDA, and VA home loans at the same time. If you are thinking about purchasing another home in addition to your current primary residence, ask your lender about the options you may have. They can outline different scenarios for you. They can also tell you the specific requirements for each program, depending on your credit, income, and other factors. They are there to help you make the best decision for your situation.