It is a well-known fact that FHA loans are available only for properties that are used as primary residences. However there are certain cases where one can go for an FHA home loan for a second home.
No borrower can take an FHA mortgage to buy a vacation home. It is not available for “recreational use” purchases. However, it can be availed if you are buying a second home to use it as your secondary residence.
So, what exactly is a secondary residence?
It is a property that you occupy in addition to your primary residence.
For instance, say your primary residence is in Jefferson County, West Virginia and you are working in New York. You will obviously want to live in New York because it would be easy to commute every day to work. The rent for the kind of housing you need for your family may not however be affordable in New York. This is when you can apply for an FHA loan for a secondary residence.
Many FHA-approved lenders may have contacted you via FHA leads. However, not all of these may agree to give you an FHA loan for your secondary residence. There are a few FHA requirements for undue hardship. Only if your individual situation meets this requirement you will be able to qualify for a FHA loan for a second home. Nevertheless, not every FHA-approved lender is authorized to assess your individual situation and see if it meets these requirements.
So, who is the one who determines whether or not you qualify for an FHA loan for a second home?
It is the FHA itself. However, you don’t submit your hardship exception directly to the FHA. You submit it to the FHA-approved lender who then submits it to the FHA.
Now, what exactly is this hardship exception?
It is a letter that explains your need for a secondary residence. It should clearly state the lack of availability of rental housing in the locality that meets your needs. The letter has to be supported by written evidence from the real estate professionals in the area that support your claim of lack of available/affordable rental housing in the locality.
Once submitted, it is up to the discretion of FHA to approve or reject your application. Not every application is approved. A lot depends on the circumstances and individual situations.
There are a few conditions that apply for FHA loans on second homes.
Any borrower can have only one secondary residence at a given point of time
In case you travel to a couple of places regularly on work and it is not possible for you to afford rentals at these places, you cannot apply for FHA loans for secondary residences at each of these places. It is only available for one secondary residence.
The residence cannot be used as a vacation home or for recreational purposes
You cannot rent out your secondary residence as a vacation home or for any other recreational purposes. For such purposes, you can however go for a conventional mortgage by paying up a higher down payment.
The maximum amount that FHA may approve for such a home is 85% of the sale price or appraised value of the home, whichever is lesser
Since you have already taken an FHA loan for your primary residence, the FHA cannot approve a loan for the entire value of your home. You will have to put in 15% of the amount or more, if the appraised value is less than the sale price.
FHA loan for a second home will be available only for circumstances such as employment relocation or seasonal employment
As per rules you will have to prove that you have relocated to the area because of your employment if you want to apply for an FHA mortgage for a secondary residence. In some cases seasonal employment may also be taken into consideration. However, the final decision is only in the hands of the FHA.
Before you apply for an FHA loan for your second home with a lender who contacts you via FHA leads, it is always better to make sure whether or not you qualify for one.