FHA Loan for a Second Home?

June 5, 2019

One of the primary misconceptions about FHA mortgages is that they are strictly need-based, and as such feature income caps or are only intended for first-time home buyers. This is not true, and if you have owned property before you are still eligible to apply for an FHA mortgage the same as a first-time borrower.

So those who have more than one home are allowed to apply and that includes for refinance loans, too.

What is the secret to getting an FHA refinance loan for a second home? There are the usual credit qualifications to deal with and borrowers who wish to refinance with ANY refi loan owe it to themselves to start preparing their finances and credit about a year in advance of any loan application, refinance or not.

But there is a big issue with getting a refi loan approved on a second home; FHA home loan rules have an occupancy requirement which MUST be met in order to get the loan approved.

FHA home loan rules found in HUD 4000.1 state that FHA mortgages are approved for those who agree that at least one borrower obligated on the mortgage will live in the home as the full-time residence.

This is known as the FHA occupancy rule and there are no exceptions for new purchase or refinance loans. If you have a second home you are not currently occupying as your main residence, you will need to do so as a condition of refinance loan approval.

For FHA rehab loans which may involve major construction projects on the home, it’s understood that you may or may not be able to occupy the property while the work is being done. But over the long term, after the renovations are complete, you must occupy the house as your home address.

FHA refinance loans are intended for residences, so you can’t refinance a vacation home, a time share, or any kind of commercial operation such as a Air B-nB, a bed and breakfast, condohotel, or other transient occupancy type rental space.

If you live in a second home where you also rent unused living units out to others on a long-term basis, there is no problem with FHA refinancing assuming you are otherwise qualified and the home meets minimum FHA standards.

But for those trying to refinance a second property they don’t intend to live in, FHA loan approval is not possible until you agree to take occupancy in the second home. Ask your loan officer about how these rules may apply to your refinance loan transaction.

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