The FHA is one of the most important government organizations in the real-estate industry. Many homeowners count on FHA loans, and we receive lots of questions about this type of financing. To help create better-informed borrowers, this is the second part of our FHA FAQ series.
FHA FAQ Part 2: Frequently Ask Questions on FHA Loans
Q: How Much Can I Borrow When Using an FHA Loan?
A: FHA mortgage limits are determined on a county-by-county basis. In San Diego County, for example, the limits are higher because it’s generally a high-cost area. With higher-average homes, the limit on a loan for a one-family home is $649,750. If you are using an FHA loan to purchase a two-family home in San Diego County, you can borrow up tp $831,800, while three family homes are available with lending above $1 million. If you are purchasing a four-family house, you can actually borrow almost $1.25 million for your purchase.
In lower-cost areas, the limits are lower. The floor for the allowable maximum for FHA loans is currently $294,515 for a single-family home.
Q: Can I Purchase a Second Home with an FHA Loan?
A: Generally no. FHA loans are designed for owner-occupants. However, you may be able to use an FHA loan to purchase another home. This is generally only allowed when you have a realistic need for a larger or different home. In most cases, however, the FHA will not insure more than one loan for a single person. However, if you are relocating, you may be able to use an FHA loan for your next home and have two for a short period while your old home is being sold. Despite the details, it’s reasonable to say that you usually can’t use an FHA loan to purchase a second home or a vacation home.
Q: Can I Purchase an Investment Property with an FHA Loan?
A: No. FHA loans are created to support and encourage homeownership, and they are not meant to be used as a way to make investments. The United States government has determined that people owning homes is good for the country, and through the FHA they have made this more possible by allowing for lower down payments and easier restrictions on credit scores. They are not meant to encourage investments. Also, investment properties tend to come with a higher risk, so FHA loans are not allowed for this reason.
Q: Are FHA Loans Fixed-Rate or Adjustable?
A: Both. There are FHA loans that are available in fixed rate or adjustable rate mortgages. Fixed-rate mortgages are more predictable and come with consistent payments, while the monthly cost of an adjustable rate mortgage can go up or down. However, adjustable-rate mortgages often come with a period of low interest, so they could be beneficial for some borrowers. Talk with an FHA lender to find out which one is right for your needs.
Q: What are FHA 203(k) Loans?
A: These are loans insured by the FHA that can be used for both the purchase of a property and the renovation of the home. They are useful for many people who want to buy a fixer-upper but need financing for repairs and remodeling. They come with requirements for contractor approval and other factors that may not be included in a typical FHA loan, but they could help you purchase a quality home and be able to refurbish it into a great property. With a 203(k) loan, most projects are allowed, including replacing appliances, installing new flooring, repairing a roof, or remodeling the bathroom.
Q: I Recently Received Gift Money. Can I Use it as a Down Payment?
A: Yes! As long as the gift giver (as well as the borrower) meet certain requirements, the gift can be used for your down payment. However, at least 3.5% of the down payment needs to come for your personal money in most cases, and the gift fund will likely need to come with a “gift letter,” which outlines the nature of the gift, including amount, purpose, and a statement that it is in fact a gift and not a loan.
Q: How Many FHA Loans Can I Have at One Time?
A: In most cases, you are not allowed to have more than one FHA loan at a single time. However, there are exceptions to this rule. First of all, if you are relocating more than 100 miles from your current home for work-related reasons, you can have more than one FHA loan. This exception is usually applied when people are forced to move because of work. The other exception is when your family has grown since you first took out your original FHA loan, but this only applies if your current loan-to value ratio is 75% or less. You can also have two FHA loans if you are leaving your current home and have a co-signer who is staying at the property. Basically, if you are a co-borrower on a loan but do not live at the property, you can be responsible for two FHA loans.
Q: I Recently Had a Foreclosure. Can I Still Use an FHA Loan?
A: Generally loans backed by the FHA are not available until three years since your foreclosure, although there are exceptions. If you can prove the foreclosure was beyond your control and you have reestablished good credit, you may be able to secure a loan backed by the FHA. There are different requirements for people who have gone through Chapter 7 or Chapter 13 bankruptcies, so talk with a FHA-approved lender for detailed information.
Q: Can I Refinance My Current FHA Loan?
A: Yes. If you want to refinance quickly, you can use the FHA Streamline Refinancing program. This program eliminates many of the steps, and allows you to refinance your current loan into another FHA loan, as long as there is a tangible benefit to your finances.
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