Real estate finance has many rules and guidelines, especially regarding government-oriented loan programs. Amongst the regulations, one that stands out and often leaves borrowers curious is the FHA 100 Mile Rule.
This rule seems relatively straightforward, yet upon deeper inspection, it’s cloaked in layers of complexities. Based on my extensive experience, understanding this guideline can be a game-changer, particularly for individuals considering a move to a new primary home while maintaining their previous home, or for those contemplating an effective way to manage rental properties.
What is an FHA Loan?
An FHA loan is a mortgage issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). It’s designed to assist low-to-moderate income borrowers and many first-time home buyers, who might not qualify for traditional loans due to stringent guidelines.
Notably, the number of FHA loans you can have isn’t fixed and can depend on several factors, including compliance with the distance requirement.
Overall, your future home must meet specific FHA-mandated requirements. For example, getting an FHA loan for a mobile home requires the Department of Housing and Urban Development (HUD) approval of coding standards, such as a minimum living space of 400 square feet.
What is the FHA 100 Mile Rule?
The FHA has crafted various regulations to minimize lending risks. These guidelines enable borrowers to acquire a second loan for a new principal residence if it’s more than 100 miles from the current dwelling.
This rule can be especially beneficial when a job or relocation requires the borrower to shift their principal residence while maintaining their existing home.
Through this rule, the FHA responds to borrowers’ evolving life circumstances and housing needs, including how to get an FHA loan for a second home while maintaining a secure financial system.
Exceptions to the Rule
FHA loans are designed for primary residences, and borrowers cannot have multiple FHA loans concurrently. However, as with any rule, specific exceptions exist:
Relocation
Relocation due to work or military service is among the most common provisions. To qualify for this, borrowers must demonstrate that the relocation is necessary and falls outside their control. An example is the mandatory job transfer or military reassignment that requires a move of over 100- miles from the current home.
In such cases, the FHA can allow you to purchase a new primary residence with an FHA loan while maintaining your current FHA-insured home. This leniency can be seen as an accommodation for pressing and unavoidable life transitions, minimizing the disruption to your financial and home conditions.
Increase in Family Size
If the size of your family increases significantly after obtaining the initial loan, your original residence may not comfortably accommodate your family. In that case, you may apply for another FHA loan.
This provision acknowledges the evolving home needs associated with changes in family size. It provides an avenue for family growth without stifling restrictions. However, you must provide valid documentation to prove such circumstances and show that the current home can no longer meet your family’s needs.
Vacating a Jointly Owned Property
Vacating a jointly owned home is another case where FHA leniencies apply. If you co-owned a property with an FHA loan and decided to leave home for reasons such as divorce or other personal situations, you might qualify for another FHA loan for your new residence.
The FHA understands the complexities of such situations and offers this leniency to help ensure that your home conditions aren’t adversely affected by changes in personal circumstances.
Non-occupying Co-borrower
An exciting case comes with the non-occupying co-borrower leniency. If a non-occupying co-borrower wishes to become an occupying borrower in a different residence, the FHA may permit another FHA loan.
The non-occupying co-borrower provision can be an effective tool for homeownership, especially when a co-borrower who initially supported acquiring a family member’s home decides to purchase a separate residence for themselves. This demonstrates the FHA’s commitment to flexible and accommodating borrowers’ needs within a secure lending framework.
Though permissions provide leeway for borrowers in certain life situations, meeting specified criteria remains crucial for eligibility for multiple FHA loans.
Harnessing the Rule to Count Rental Income
The FHA rule can prove invaluable if you plan to move to a new property while retaining your home. Here’s where rental income from your prior residence that’s to be rented out can come into play.
FHA rules stipulate that you can rent out a home with an FHA loan, sell it, or meet the payments for both properties. This flexibility facilitates utilizing the loan system and enables borrowers to manage their real estate according to their personal and financial needs.
To use rental income in your qualification process, you must have equity in the prior residence. If there’s less than 25% equity, rental income may not be counted towards qualifying for both mortgage payments. Specifically, the FHA requires you to be eligible for payments on both properties plus any rental income to offset the old mortgage payment.
Navigating FHA Loan Provisions and Requirements Successfully
Understanding FHA loan provisions and requirements can be your success ticket in a smooth real estate journey, whether buying a first home, a second home, rental property, or retaining your existing properties when relocating due to job or military service needs.
Drawing from this knowledge, I can attest that you’re empowered to chart a course through the intricate landscape of FHA loans, fully aware of the twists, turns, and scenic overlooks along the way.
Frequently Asked Questions About FHA 100 Mile Rule Exceptions
What are the exceptions to the FHA 100-mile rule?
These permissions address changes in a borrower’s personal or employment circumstances that necessitate a change in primary residence. They provide flexibility in applying the guideline, making the FHA loan system more accommodating to different borrowers’ needs.
What is the FHA 100-mile rule?
The rule is a guideline that permits a borrower to have more than one FHA home loan. It was designed to help borrowers who need to relocate due to job requirements or reassignment, allowing them to purchase a new home without selling or renting out their existing home.
Does FHA allow rental income from departing residences?
Yes, FHA does allow rental income from a departing residence to be considered in the borrower’s income calculations. However, it imposes certain conditions for this to be valid. For instance, under most circumstances, the borrower must currently have a minimum of 25% equity in the departing property for the rent to be counted. Further, the borrower must also be able to adequately justify the need to vacate the current home and purchase a new one.
