You can use FHA as many times as you buy. There's no lifetime cap and no first-time buyer rule. What HUD limits is how many FHA loans you hold at once: generally one, on the home you live in. Sell that home or refinance it into a Conventional loan, and you're free to use FHA on the next one.
The one-at-a-time rule
FHA exists to help people buy homes to live in. HUD Handbook 4000.1 says FHA won't insure more than one property as a principal residence for any borrower, except in the situations it lists. It also won't insure a loan when the purchase is set up to collect rental properties with FHA financing, even if the new home would be the only FHA loan the borrower holds.
Outside those exceptions, there are two clean paths to a second FHA purchase. You can sell the first home, which pays off its FHA loan at closing. Or you can refinance the first home into a Conventional loan, which also ends its FHA insurance. Many owners do that refinance once they have about 20% equity, since it drops the FHA mortgage insurance at the same time.
The four exceptions in HUD 4000.1
HUD lets you take out a new FHA loan while you still have one in these cases:
- Relocation. You're moving to an area that isn't within reasonable commuting distance of your current home. The move doesn't have to be ordered by an employer, and you don't have to sell the home you're leaving.
- Increase in family size. Your household has grown, the current home can't meet the family's needs, and the loan-to-value ratio on the current home is 75% or less, based on what you owe and a current appraisal.
- Vacating a jointly owned property. You're moving out of a home you own with a co-borrower who will keep living there, as often happens after a divorce or separation.
- Non-occupying co-borrower. You co-signed an FHA loan on a home someone else lives in, such as a child's first home, and now you're buying a home of your own to live in.
In every case, the new home has to be your primary residence, and both mortgage payments count in your debt-to-income ratio unless the lender can use rent from the home you're leaving under FHA's rental income rules.
The 75% equity test, worked out
The family-size exception turns on one number. Loan-to-value (LTV) is what you owe divided by the home's current appraised value, and it has to be 75% or less.
| Example A | Example B | |
|---|---|---|
| Current appraised value | $340,000 | $340,000 |
| Balance owed | $250,000 | $270,000 |
| LTV | 73.53% | 79.41% |
| Meets the 75% test? | Yes | No |
The 75% line on a $340,000 home is $255,000 ($340,000 × 0.75). The owner in Example B would need to pay the balance down by $15,000, to $255,000, before this exception applies. Another route is to sell or refinance the current home, which makes the test unnecessary.
Using FHA again after you sell
Selling your first home usually does more than free up FHA. It turns your equity into the down payment for the next purchase. An owner who sells for $360,000 and owes $280,000 has $80,000 before selling costs, far more than the 3.5% FHA requires on the next home. You'll pay the 1.75% upfront mortgage insurance premium again on the new loan, financed into the balance like the first time, and the same 580 score for 3.5% down applies.
Run a price on your next home through the price check tool to see the payment and cash to close on FHA and Conventional. If you have an FHA loan now and want to know which exception or path works for your move, call AAA Capital Funding at 888-601-8344 and we'll lay out the options on your actual balance and value.