Apparently You Can Have More Than One FHA Loan...

Creative Financing
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Hey Tipsters,

I just thought I'd bring this to the attention of our community.

I was emailing back and forth with my lender and he informed me of something very interesting!

It's commonly understood that when it comes to the 3.5% down FHA loan, you're only allowed to use it once as a new homeowner (meaning it has to be your first time using a loan to purchase a home).

I think this used to be the case but according to my lender, these days it's not!

The rule is (again, according to my lender - I'm not speaking as an authority here) that if you have an FHA loan on a property you need to live at the property for at least a year.

If you then move, and you want to use another FHA loan, you need to move at least 100 miles away from the first property.

I've heard there are even exceptions to this requirement, meaning if you can make a case as to why you need to move (like babies being born, relatives moving in, needing more space, etc.) FHA may make an exception and allow you to use another FHA loan in close proximity to the first property.

If you abide by these rules, apparently you can have several FHA loans out at once!

This could be a big deal - if you're willing to move every year or two, and you buy small multifamily (meaning 2-4 units) everywhere you go using FHA loans, this might be a strategy where you can build a rental portfolio with very little out of pocket.

Let's say, you decided to only buy quadplexes and each one costs $250,000.

3.5% down of $250,000 is $8,750 - if we factor in closing costs, we're probably around $10,000 all-in.

If over a 10 year period you only bought 5 quadplexes, that would be 20 units under management for only $50,000!!!

It could be pretty sweet if it worked- but I wonder if FHA would put a stop to it after a certain number of loans... what do you guys think?

Does anyone have experience taking out several FHA loans?

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@jarenb Hey Jaren, that's really interesting. I knew that you could open a new FHA loan after an old one was paid off (or refinanced to a conventional loan) but didn't know you could have more than one FHA loan simultaneously. Personally, I wouldn't be comfortable taking on that much leverage, especially in times like these. Not to mention that the PMI would also be substantial.

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I have a buddy of mine who's used this to collect 4 houses over the last few years. He wait's 12 to 18 months and then moves again with a good "reason" on why he needs a different/new house in the same area. All his rentals are within about a 1 to 2 miles of each other. He had a new kid, he got a dog, he blah blah blah. It's been working thus far but I think he started to meet resistance from the budget lenders he's been working with. Not a huge deal though because if you did a good job creating value when you moved in and you've had any decent appreciation then you can refi the first 1 or 2 and take those old FHA's off of the table!

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@josephpeterka

Yea I agree PMI can get expensive but if the property and more specifically the rents for the area are high enough to cover everything and have to property cashflow $100-$200 per door... it might be a good strategy for some people.

It's pretty hard to beat 3.5% down.

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@jt Yea it's a very interesting strategy - I think if you were a "real estate investor" by profession, moving every 12-18 months could be an easy justification of needing to move, especially if it was 100 miles away each time.

You're moving to where the market is hot... right? :-)

It's interesting for sure!