Yes, if someone is relocating to a new area not within commuting distance of their current home, then they can purchase the new home with FHA financing (even if they already have an existing FHA loan they are moving out of), and when using FHA financing for the new purchase then rental income from the home they are moving out of can also be used to qualify as long as there is a rental agreement that spans at least the first year of the new mortgage & evidence that they have collected the 1st months rent and/or security deposit (even if they are upside down). FHA just requires a 500 credit score, however the majority of lenders that offer FHA financing will be looking for a 620 or 640 credit score (we require a 620).
FHA's guidelines specifically say:
A borrower may be eligible to obtain another FHA-insured mortgage without being required to sell an existing property covered by an FHA-insured mortgage if the borrower is
· relocating, and
· establishing residency in an area outside reasonable commuting distance from his/her current principal residence.
Note: The relocation need not be employer-mandated to qualify for this exception.
When a borrower vacates a principal residence in favor of another principal residence, the rental income may be considered in the underwriting analysis, under the circumstances listed in the table below:
Relocations The borrower is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally-recognized commuting distance.
A properly executed lease agreement (that is, a lease signed by the borrower and the lessee) of at least one year’s duration after the loan is closed is required.
Note: FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence that the first month’s rent was paid to the lessee.
Shane Milne | Lending in all 50 states | NMLS #81195
shane@thebesthomeloans | 949-273-4161 direct... more
I am sorry to tell you that no, you cannot borrow more than the purchase price of the home on a purchase. Even if the home sold for a dollar, you would need to purchase the home and then turn around and do a cash out refinance. Unfortunately, FHA does not allow cash out on a property within the first 12 months of ownership. More lenders used to offer conventional financing basing the loan on the appraised value even after 1 day on title, but even that has gone away and 6 months is now the minimum requirement to cash out on conventional financing.
If you have any questions, you are welcome to call me.
Bank of America Home Loans