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How the FHA 100 mile rule limits your ability to rent out and buy a home

December 26, 2019 by Scott Sheldon

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What you need to know if you are seeking an FHA mortgage with student loans

FHA Loans are one of the most flexible loan programs available in the US housing market today. They are incredibly flexible only require a 3.5% down payment and offers very makes sense underwriting. If you’re looking at an FHA loan however and you already own a house and your desiring to borrow money to buy another house. This FHA guideline may come back to bite you…

The FHA insures loans does not guarantee loans. The FHA insures the lender in the event you do not make your mortgage payment. The FHA is probably the second most popular form of residential mortgages in America with the first being Conventional mortgages. The FHA while incredibly flexible is very sensitive to rental income situations…

Here is the grandaddy problem with FHA Loans and rental property.

Let’s say you currently have a house regardless of what type of loan you have on that house. You are looking to go buy a new primary home and you’re going to use rental income to qualify by renting out your old home. Makes logical sense right? The departure residence would get converted from primary home to rental property home. Not so fast here’s where things can become problematic. The FHA has a requirement that specifically states the new primary residence must be 100 miles away from the old departure residence. This means you cannot keep your house and then turn around and buy another one a few miles away using an FHA Loan for the acquisition of the new primary home. The two properties need to be 100 miles away from each other.

In such a scenario you would be much better off going with 3% or 5% down Conventional Loan to acquire a new primary home as the conventional financing does not have a 100-mile distance requirement. Keep this in mind when you’re figuring out what you want to do with that property. In some cases, it might make sense to change loan programs or potentially even sell the departure property because if you sell the departure property you will have more down payment money’s lowering your monthly housing expense for the new purchase.  It could help you from having private mortgage insurance which is a requirement of FHA Loans. This is something to think about when determining what type of loan program and loan structure makes the most sense for you.

This is also precisely why it always is generally a good rule of thumb to work with an experienced lender specifically familiar with the intricate details of FHA and Conventional loans. Hint that’s not an online blender promising you a rocket experience.

Looking for a quality lender? Start with a no-obligation rate and cost quote now!

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Filed Under: Credit Score Questions and Answers, Economic News, First Time Home Buyers, Interest Rates Tagged With: FHA, fha buy a new home, FHA home loans, FHA Loans, income needed for fha loan, qualifying for a mortgage, sonoma county home buying, Sonoma County home loans

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Scott Sheldon, Senior Loan Officer
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2455 Bennett Valley Road C107
Santa Rosa, CA 95405
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