Understanding The FHA 100 Mile Rule: How It Impacts Your Ability To Get Multiple FHA Loans
Updated: 7 days ago
Navigating the landscape of home loans can be a complex task, especially when considering options like FHA loans. Though attractive for their low down payment, the FHA has guidelines such as the 100 Mile Rule that may impact your ability to get multiple FHA loans.
This blog post provides detailed insights into what the FHA 100 mile rule is and how it affects homeowners looking to utilize their current residence as rental property while financing another home with an FHA mortgage.
Ready to learn? Let's dive right in!
Key Takeaways
✅ The FHA 100 Mile Rule prevents homeowners with an existing FHA loan from using their current residence as a rental property while obtaining a new FHA-insured mortgage for a new home located less than 100 miles away.
✅ Homeowners may need to sell their current property if they want to buy a new home closer than 100 miles from their current location and finance it with an FHA loan.
✅ There are exceptions to the FHA 100 Mile Rule that allow homeowners to qualify for an FHA loan with rental income from their current residence without needing to relocate over 100 miles.
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What is the FHA 100 Mile Rule?
The FHA 100 Mile Rule is a guideline that affects homeowners who have an existing mortgage and are looking to utilize their current residence as a rental property while obtaining a new FHA-insured mortgage for their new principal residence, located more than 100 miles away.
It also provides exceptions to the rule and alternative options for those who don't meet its criteria.
The FHA 100 Mile Rule's Impact on Using Rental Income from a Current Residence
The FHA 100 Mile Rule can affect how you use rent money from a home. This rule says that your new main home must be at least 100 miles away from the old one. It helps stop people from buying many homes near each other with their low-cost FHA loans.
If you move less than 100 miles, you might not get to count the money you make from renting your old house when applying for a new FHA loan on a second house. The rule is made so people don't use cheap FHA mortgages to buy houses just to rent them out.
So, while you can keep your first mortgage and get another one, there are strict rules about when and how you do it.
Forced Sale of Your Primary Residence Under FHA Guidelines
The FHA rules can push you to sell your main home. This happens when you have an existing FHA loan and want a new one. The rule states that the new home must be 100 miles away from your current one.
If not, the FHA might ask for a forced sale of your first house.
Selling under force is tough. You may get less money than if you had more time to sell it yourself. Yet, this step helps keep the mortgage market fair and open for all people.
Navigating Lender Requirements When Your Home is Less Than 100 Miles Away
Getting a new FHA loan is tricky if your current home is less than 100 miles away. The FHA 100 Mile Rule says you must move at least 100 miles away to get a second FHA mortgage. But there are ways around this problem.
One way is by converting your first property into a rental unit. Then lenders might agree that it's not your main house anymore, clearing the way for an additional loan on your new home.
Make sure to check all laws and rules before starting this process.
Converting Your Home with an FHA Loan into a Rental Property
If you have an FHA loan and want to convert your home into a rental property, there are a few things you should know. First, the FHA 100 Mile Rule still applies in this situation. This means that if you want to use rental income from your current residence to qualify for another FHA loan, your new primary residence must be at least 100 miles away from your current home.
It's important to understand this rule before making any decisions about converting your home into a rental property with an FHA loan. Remember to consult with professionals familiar with FHA guidelines for more information on how this rule may affect you.
Exceptions to the FHA 100 Mile Rule
The FHA 100 Mile Rule is a guideline that states a borrower can only have one FHA loan at a time unless the second home is at least 100 miles away from the first home.
However, there are certain exceptions to this rule, allowing borrowers to hold multiple FHA loans under special circumstances. Here are the exceptions to the FHA 100 Mile Rule as delineated by various sources:
Meeting FHA Guidelines to Use Rental Income Without Relocating Over 100 Miles
If you want to use rental income from your current residence without having to move over 100 miles, there are guidelines you need to meet according to the FHA. The FHA allows borrowers who have an existing FHA loan on their prior residence and want to finance another home with another FHA mortgage, but without relocating a far distance.
In this case, the borrower can qualify for both mortgages as long as they meet the necessary requirements. However, it's important to consult with professionals familiar with FHA loan guidelines to understand all your options.
Remember that you may not be able to count rental income if it's not within the required guidelines set by the FHA.
Conventional Loan Alternatives to FHA's 100 Mile Rule
Finding viable alternatives to the FHA's 100 Mile Rule may be necessary for individuals who wish to secure a second mortgage but can't meet the distance requirements. Conventional loans can offer a feasible solution in such circumstances. Here's a brief overview of some of the alternatives:
While these alternatives can provide different solutions to the FHA's 100 mile Rule, it's crucial to understand what each one entails to make the best decision for your financial situation. It's advised to consult with a mortgage professional to fully understand all your options.
Utilizing Multiple FHA Loans for Rental Properties
If you're looking to purchase a new home with an FHA loan while keeping your current property, there are specific guidelines you need to follow. The FHA's 100-mile rule generally states that the new property must be more than 100 miles from the borrower’s current principal residence. However, there are exceptions to this guideline, especially if you're relocating more than 100 miles for work or other reasons.
How to Use an FHA Loan for Your First Rental Property
When using an FHA loan for your first rental property, it's crucial to understand that you may only have one FHA loan at a time. However, rental income on a departing residence can be counted when using an FHA loan on the new property. This can help improve your debt to income ratio, making it easier to qualify for a new FHA-insured mortgage.
Guidelines for Obtaining Another FHA Loan for a New Rental
If you already have an FHA loan and are looking to obtain another FHA-insured mortgage, there are specific guidelines to follow. The property being vacated by the borrower must either be sold or rented, and the borrower must be relocating to an area more than 100 miles away. You may also be a co-borrower on an existing FHA loan and still qualify for a new FHA insured mortgage under certain conditions.
Relocation and FHA: What You Need to Know
Relocation and FHA loans have specific rules. For instance, if your duty station is over 100 miles away from your current residence, you may be eligible to obtain another FHA-insured mortgage without being required to live in the original house. This rule allows a buyer to retain their FHA loan on the prior residence and finance another home even if the prior residence is being rented.
Mortgage Considerations for Multiple FHA Loans
When considering multiple FHA loans, it's essential to understand the mortgage insurance implications and how they affect your debt to income ratio. If you move from one FHA residence to another within 100 miles, specific rules apply. For example, income derived from the property of the old departure residence can be counted, but you'll need to navigate the general FHA guideline exceptions carefully.
Conclusion
To sum up, the FHA 100 Mile Rule is an important guideline for anyone looking to get multiple FHA loans. It restricts borrowers from using rental income on their current residence if they want to finance a new home with another FHA loan.
By enforcing this rule, the FHA aims to prevent people from taking advantage of the low down payment and other benefits of FHA loans for investment purposes. To fully understand how this rule may impact your ability to obtain multiple FHA loans, it's crucial to consult with a mortgage professional or experts in FHA loans like the Law Office of FHA Loans.
Commonly Asked Questions
What is the FHA 100 Mile Rule?
The FHA 100 Mile Rule is a guideline that allows borrowers to obtain another FHA-insured mortgage on a new principal residence that is located more than 100 miles from their current residence. This rule allows a buyer to retain their FHA loan on their prior residence when they move to another area.
Can I use an FHA loan to purchase another home?
Yes, you can use an FHA loan to purchase another home. The FHA 100 Mile Rule allows borrowers to obtain another FHA-insured mortgage on a new principal residence.
What does "rental income on a departing residence" mean?
Rental income on a departing residence refers to the income generated from renting out your prior residence. This rental income can be considered when qualifying for a new FHA-insured mortgage under the 100 Mile Rule.
Can I use rental income to qualify for a new FHA mortgage?
Yes, you can use rental income to qualify for a new FHA mortgage. The FHA 100 Mile Rule allows borrowers to include rental income from their departing residence when applying for a new FHA-insured mortgage.
Can I obtain another FHA mortgage if my duty station is over 100 miles away?
Yes, if your duty station is over 100 miles away from your current residence, you may be eligible to obtain another FHA mortgage under the 100 Mile Rule. This rule allows active duty military personnel to retain their FHA loan on their prior residence and purchase a new home with another FHA loan.
Can I move back to the original area and obtain another FHA mortgage?
Yes, if you move back to the original area, you can obtain another FHA mortgage. The FHA 100 Mile Rule allows borrowers to qualify for a new FHA-insured mortgage on a new principal residence, even if it is in the same area as their prior FHA-insured home.
Are there any exceptions to the FHA 100 Mile Rule?
Yes, there are exceptions to this guideline. Thanks to the rule's flexibility, borrowers may qualify for another FHA-insured mortgage on a new principal residence within 100 miles of their current residence if certain conditions are met, such as a change in employment or family size.
Can I obtain a new FHA-insured mortgage if I am in active duty status?
Yes, active duty military personnel can obtain a new FHA-insured mortgage under the 100 Mile Rule. This rule allows them to retain their FHA loan on their prior residence and purchase a new home with another FHA loan, even if their duty station is over 100 miles away.
Can I obtain a HomeReady loan under the FHA 100 Mile Rule?
The FHA 100 Mile Rule applies specifically to FHA-insured mortgages. If you are interested in a HomeReady loan, you would need to consult with your lender to determine eligibility and any applicable guidelines.
FAQs
What is the impact of the FHA 100 Mile Rule on my ability to get multiple FHA loans?
The FHA 100 Mile Rule affects your ability to get multiple FHA loans in a positive way. It allows you to retain your FHA loan on your prior residence and obtain another FHA-insured mortgage on a new principal residence, even if they are within 100 miles of each other.
Can I get conventional loans along with my FHA loan?
Yes, even after having an FHA loan, you can apply for a conventional loan if needed.
How does the rule impact my ability to get multiple loans?
The rule impacts how far away your next home must be before rental income from your present home will help on your new loan application.
What happens if I want to buy a house closer than 100 miles but still need another loan?
In this case, applying for a conventional loan could be your best choice as it's not tied by the same rules as an FHA Loan.
Philip Bennett
Philip is the owner and Licensed Mortgage Broker at Bennett Capital Partners, Bus. NMLS # 2046828. He earned his degree in Accounting and Finance from Binghamton University and holds a Master's Degree in Finance from NOVA Southeastern University. With more than 20 years of experience, Philip has been a leader in the mortgage industry. He has personally originated over $2 billion in residential and commercial mortgages.
Learn more about Philip Bennett's background and experience on our Founder's page. Whether you're a first-time homebuyer or a seasoned real estate investor, our team is here to help you achieve your real estate goals. Don't wait any longer, contact us today and let us help you find the right mortgage for your needs.
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