The FHA is aimed at promoting home ownership for consumers who do not ” fit the box” by traditional credit standards, high credit score, big equity, low debt ratio etc. The FHA supports the housing market by offering an alternative financing vehicle for homeowners and buyers with little equity. The FHA makes loans on primary homes only -with a few exceptions…
Exception 1-As as long as the property used to be a primary residence and the mortgage is an FHA insured loan, you can still get a new FHA Mortgage for that same property. Here is a scenario that will pass the ‘makes sense test’-house was purchased and lived in. Same consumer purchased a different primary home moved into that property, and has been renting out the original home ever since relocating.
Exception 2- property was purchased as a primary home and lived in, loan on the property is an FHA insured loan, consumer purchased and moved into a new primary residence and has turned the original home into a second home/vacation property they visit a few times per year.
To meet the rule-property must have been a former primary residence and has a current FHA Loan tied to that home. In such a scenario, a consumer can refinance that loan under the FHA Streamline Refinance Program.
What consumers should be aware of is that in recent years, FHA has increased their mortgage insurance premiums which can make an streamline refinance less attractive as the mortgage insurance premiums are higher than in years past.
Current FHA Mortgage Insurance Factors
Includes up to 1.75% of the loan amount amortized over the term of the loan as well as a monthly mortgage insurance factor based on 1.35% off the loan amount prior to the upfront mortgage insurance premium being financed.
Here’s an example…
Taking a loan amount for $400,000, financed loan amount becomes $407,000. 1.75% of $400,000 translates to $7000 which is then financed over the term of the loan. The monthly mortgage insurance would be a pricey $450 per month before principal and interest, fire insurance or property taxes are even accounted for.
FHA Refinance Deals Sweeten For Consumers Who Took Out Mortgages Prior To May 31, 2009
FHA Loophole –even if the property is an investment property or second home that used to be a primary residence, lower FHA premiums apply. The upfront mortgage insurance premium financed over the term of the loan, drops to just .01% of the loan amount, and the monthly premium is just .55% of the loan amount. These numbers change considerably using our $400,000 example. Upfront fee financed and the term of the loan drops to $4000 and the monthly drops to $183, indeed attractive for a vacation home or an income property.
These numbers also apply even if the home is still your primary residence, occupancy does not change the terms or amounts mortgage insurance.
More Scenarios for Occupancy Related FHA Mortgage Loans
Mortgage Tip: You can even have to two FHA Mortgage Loans out at the same time- yep, concurrently.
Trying to purchase another principal residence with an FHA mortgage?
If yes, here are some makes sense paths to explore:
- new property would have to be out of a reasonable commute time from the distance of your current primary home
- growing family creates the need for “more house”
- departing from a jointly owned property with another party
Trying to get an FHA mortgage? Been turned down because your scenario doesn’t make sense? Talk to a make sense mortgage lender for your FHA mortgage loan scenario. Let an FHA expert structure your loan today by getting a complementary mortgage rate quote.