Can we qualify for an FHA loan on a 2nd home if we rent out our first home? We do not have any equity in our first house. Our credit scores are 800

Asked by Mmtampa, Tampa, FL Fri Jun 24, 2011

We purchased our home for 167K in 2005 and with 133K left on our mortgage it is valued at 100K.

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20
Piperclara, Home Buyer, Fort Worth, TX
Wed Jul 22, 2015
You can only have FHA loan at a time. Are you planning on renting this ""second home"" out or are you simply buying another property as a vacation home? http://fhamortgageinfo.com/

FHA loans are only for primary residences so if that is the case, this is not the loan for you. Overall going conventional with 5% down is typically CHEAPER over the long run than an FHA loan is if you are looking to buy a new primary.
5 votes
Shane Milne, Mortgage Broker Or Lender, South Jordan, UT
Sat Jun 25, 2011
I am a mortgage lender, not broker, but I don't mind being called either since I brokered loans for nearly my entire life and honestly would still prefer to have that as an option as most loan officers would I'm sure.

Anyway thanks for coming back to add information Mmtampa.

So you have your $160k/year of income ($13,333.33/mo)
$600/mo for your current mortgage payment (does that include taxes/insurance/HOA fees too? those are all included if not - let's say they are not and so let's add another $500/mo for those items)
$500 car payment

I'm not going to lie, I haven't done a ton of purchases in Tampa, I think I may have done one about 8 years ago, so I won't even pretend to know how much property taxes & homeowners insurance are, but I will guess and to be on the safe side I'll use Broward County type insurance/taxes as those have all been fairly high IMO.

Let's assume you buy a $300k sales price, FHA financing 4.5% interest rate (this is not a quote, this is just an illustrative example of a housing payment), 3.5% down payment:
First Mortgage: $1,481.52
Homeowners Insurance + $241.25
Property taxes + $625.00
Mortgage Insurance + $277.44
Homeowners Association Fees + $250.00
Total Proposed Housing Expense = $2,875.21

Primary Residence Monthly Payment: $2,875.21
Total Income ÷ $13,333.33
Housing Ratio = 21.564%

Total Liabilities: $4,475.21 (new mortgage payment + $1,000 current housing payment + $500 car payment)
Total Income ÷ $13,333.33
Total Debt Ratio = 33.564%

FHA prefers a housing ratio no more than 31%, and a total debt ratio no more than 43% (higher than that, up to ~44%/~57% can qualify with relative ease). Yours are 21/33% with the above figures. That isn't including any rental income from your current home used to offset it's housing payment, so no need to worry about the equity or FHA's "borrower is relocating with a new employer or being transferred by their current employer to an area that is not within a reasonable commuting distance" requirement in order to use rental income to qualify when vacating your primary residence. So you are looking good.

Now like others have pointed out if you are buying a home as a new primary residence while owning and living in a home in the immediate area, it needs to make logical sense. Is it "improved" in some way over your current home? Bigger? Closer to work? In order for an underwriter to believe it will be, it #1 needs to be and #2 needs to be justified so be prepared to write a letter of explanation.
3 votes
Lisa Reeves, Agent, Tampa, FL
Sat Jun 25, 2011
The primary home is looked at by itself so if you qualify for 300k for your home mortgage then you can buy 300k and this is the 38% ratio. The current home would be looked at as part of your "other" expenses like credit cards, student loans, and car loans or your total debt ratio, the 43%. If you would like to get further information or a better explanation of this information I would recommend contacting Kevin Reeves at 813-729-4992. As realtors we know some basics but a mortgage professional is going to be able to give you the best information.
1 vote
Mmtampa, Home Buyer, Tampa, FL
Sat Jun 25, 2011
I should add that our current mortgage is $600/mo and car payment is $500/mo. We do have other expenses like daycare, etc, however, no other loans.
1 vote
Mmtampa, Home Buyer, Tampa, FL
Sat Jun 25, 2011
Thank you for all of the great answers. If I understand correctly, I would need to qualify for a 2nd home loan without any rental income (since we'd buy before renting out), so if our income qualifies us for a TOTAL mortgage of $300k (for example), then we're only looking at a 2nd home loan of $167K? So in order for us to qualify for a larger 2nd home loan, then we would need to move into a temporary rental for the time that it would take for us to collect 6 months rent from the 1st home?
1 vote
Lisa Reeves, Agent, Tampa, FL
Fri Jun 24, 2011
There are a few factors you need to consider - first is where your new home is in regards to the old home that is being rented. Second is if the new home makes sense as a primary home, such as need more space, change in employment and moving over 50 miles? If the new home as your primary doesn't make sense then it doesn't matter how much you make or if your ratios are in line. Next question - is your income provable. W-2 is the best. 1099, bonus, commission, or business owner income is very hard to prove and you will want to review to make sure that a lender will allow all your employment income. Finally - the loan limit is $292K for Hillsborough County and you alway have mortgage insurance added to your payment. You will also have to pay mortage insurance for five years minimum.

Your income more than covers th 38% house payment ratio and you should be fine on total debt payment being less than 43% of your income. You may want to also look at the 95% conventional route which will allow you to buy over 300K limit of FHA, it's only a little more money up front and as a down payment but you have a lower monthly payment. If you have any questions contact Kevin Reeves with New Penn Financial at 813-728-4992 or kreeves@npfllc1.com Good-luck.
1 vote
Shane Milne, Mortgage Broker Or Lender, South Jordan, UT
Fri Jun 24, 2011
Mmtampa you should be fine depending on the price of the new home. At $160k/year and what I don't imagine are more than $750/mo in the car payments, a $2k/year existing mortgage payment, you could purchase up to the $300k range and from my payment calculations (even using high homeowners insurance & property tax rates) your debt to income ratio would be fine.

FHA does not require you to have equity in a vacating residence in order to buy a new home, however if you were trying to use the renal income to qualify from a primary residence being converted to a rental property, and you were going to use an FHA loan then you either need to have 25% equity or be relocating to a new area not within commuting distance.
1 vote
Alma Kee, Agent, Tampa, FL
Mon Jun 27, 2011
Hi Again,

Also just so you know, if you decide to buy a Fannie Mae owned home you can get a HomePath mortgage with only 3% down and pay no PMI. The interest rate will be higher but may be less than FHA with the mortgage insurance. The HomePath mortgage will also allow you to buy a higher price home because it doesn't limit your loan amount to $292,500, it can go as high as $417k if you qualify and decide to go that high.

If the Fannie Mae owned house needs fixing up you can also add the cost of upgrades/repairs and still only buy with 3% down. So let's say the house has ugly worn out carpets and stained formica kitchen counters. You can have a contractor install hardwood floors, granite counters, paint the house inside and out, put on a new roof, add a new air condioner, new cherry hardwood bathroom cabinets, etc. The Contractor's cost would be added on to your mortgage and upgrades would go on after closing. This is the Fannie Mae HomePath Renovation mortgage and only requires 3% down and you can have a home that looks model perfect just a few months after you close!

If you're not yet working with a Realtor, I would like to be among those that you interview to help you find your next home.

All the best,
Alma
Alma Rose Kee, PA
Future Home Realty
813.244.9898
http://www.SoldOnTampa.com
0 votes
Alma Kee, Agent, Tampa, FL
Sat Jun 25, 2011
The FHA loan limit is $292,500 for HIllsborough County, you can buy a home with only 3.5% down with a sales price up to $303,108.

Here's a very informative website about understanding the mortgage loan process:

http://www.MtgProfessor.com

All the best,
Alma
Alma Rose Kee, PA
Future Home Realty
Westchase Office
813.244.9898
http://www.SoldOnTampa.com
0 votes
Liane Jamason, Agent, Saint Petersburg, FL
Sat Jun 25, 2011
Alma - I think it depends on each lender. On mine, yes we could move into a rental for 6 months even though my 1st property is "upside down" as long as we showed rental income for 6 months covering the mortgage it was OK without equity. Mmtampa - have you been qualified with a lender yet? That's your first step since some of them have different guidelines and restrictions.

Liane Jamason, REALTOR
Keller Williams Realty
813-486-4997
http://www.LianeJamason.com - Search the MLS
0 votes
Alma Kee, Agent, Tampa, FL
Sat Jun 25, 2011
I think the mortgage broker used a $2k monthly payment on your soon to be rental house.

I believe without having the 25% equity, it wouldn't matter if you moved into another rental for 6 months, because you would still not be allowed to include the rental income to qualify.

So, with your high income I think you should be okay with getting an FHA on your new home and be able to cover both mortgages. In reality you will be getting a very good rental income for your $100k house, the rental market is VERY strong right now.

All the best,
Alma
Alma Rose Kee, PA
Future Home Realty

http://www.SoldOnTampa.com
0 votes
Liane Jamason, Agent, Saint Petersburg, FL
Sat Jun 25, 2011
You got a lot of great answers here but another point I wanted to bring up is that some lenders will require you to show proof of that rental income for at least 6 months before they can count it towards your income. Otherwise you would have to qualify on income alone. I know from personal experience. I purchased a home in 2005 and rented it out and later wanted to buy a 2nd home, but because I did not have 6 months of rental income at the time, I couldn't use that towards our income. So I had to wait to purchase until I could show 6 months worth to buy again. The reason banks do this is because they do not want someone to buy the 2nd home, and then let the first home go into foreclosure. Sad that people were trying this but this is the only way banks have to safeguard themselves a bit. Please let me know if I can help.

Liane Jamason, REALTOR
Keller Williams Realty
813-486-4997
http://www.LianeJamason.com - Search the MLS
0 votes
Alma Kee, Agent, Tampa, FL
Sat Jun 25, 2011
Hi Again,

Some very helpful answers so far.

If you would like to browse listings with the most detail (like a Realtor), you're welcome to sign up for a free Listingbook account on my website:

http://www.SoldOnTampa.com

All the best,
Alma
Alma Rose Kee, PA
Future Home Realty
Westchase Office
13045 Linebaugh Ave
Tampa, FL 33626
813.244.9898
Web Reference:  http://www.SoldOnTampa.com
0 votes
Antonio, Agent, Tampa, FL
Fri Jun 24, 2011
Lisa made some points.......... she forgot to mention that as for September 30th, the limit for FHA will be lowered to 271k.
0 votes
Antonio, Agent, Tampa, FL
Fri Jun 24, 2011
I just saw that your current mortage is not an FHA, let's talk, where there's a will I'll find the way.... and there's one! :)
0 votes
Antonio, Agent, Tampa, FL
Fri Jun 24, 2011
ok...... I'm under the impression that either you didn't post right or answers are incorrect..........
Now, if your 1st home has an FHA loan and for any reason you have to relocate for job or else, as long is dictated for any serious reason, other than just "investing"; you might qualify.
In plain English,say....... your house is in Boca, and you relocating to Tampa..........YES WE CAN! other exceptions apply.
give me a call and I'd be glad to provide all necessary to your transaction.
best wishes,
Antonio - Prudential - 1888 77 BUY NOW
Web Reference:  http://www.HotHomeSpot.com
0 votes
Mmtampa, Home Buyer, Tampa, FL
Fri Jun 24, 2011
Our combined gross income is about $160K per year and the only debt we have (besides our mortgage) is $15K for a car.
0 votes
Mmtampa, Home Buyer, Tampa, FL
Fri Jun 24, 2011
Our current mortgage is not an FHA loan.
0 votes
Craig Kinche…, , Tampa, FL
Fri Jun 24, 2011
Is your current mortgage an FHA loan?

Craig Kincheloe
e-mail:craig@tamparealestateadvisors.com
0 votes
Alma Kee, Agent, Tampa, FL
Fri Jun 24, 2011
You need to talk with Carol Chase or Christine Bredeau with HomeBank for the correct answer.

I believe that you will not be able to use any of the rental income to qualify for your FHA mortgage on the 2nd home you buy so your income needs to be able to cover both homes. If you had about 30% equity I think you may be able to use the rental income but I have to suggest you contact Carol Chase or Kristine.

Direct: 813-749-2947 Cell: 813-817-2040
carol.chase@homebanc.com

or http://www.KristineBredeau.com

All the best,
Alma
Alma Rose Kee, PA
Future Home Realty
Westchase Office
813.244.9898
http://www.SoldOnTampa.com
0 votes
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