Can a 5th+ mortgage/FHA

14 Replies

Hi All -

Must an FHA loan be one of your first 4 mortgages or is there no relevant restriction? To put it another way, can a 5th+ mortgage be an FHA loan? Are there any other relevant considerations surrounding the number of mortgages and FHA?

Thank you in advance.

Originally posted by @Logan I. :

Hi All -

Must an FHA loan be one of your first 4 mortgages or is there no relevant restriction? To put it another way, can a 5th+ mortgage be an FHA loan? Are there any other relevant considerations surrounding the number of mortgages and FHA?

Thank you in advance.

These days, isn't it ten mortgages? (Didn't "4 mortgages" go out the window years ago?)

My answer would thus be: yes, it would need to be before your 11th mortgage.

[Not an official response. Others may have better knowledge. If so, please respond]. Cheers...

Originally posted by @Brent Coombs :
Originally posted by @Logan I.:

Hi All -

Must an FHA loan be one of your first 4 mortgages or is there no relevant restriction? To put it another way, can a 5th+ mortgage be an FHA loan? Are there any other relevant considerations surrounding the number of mortgages and FHA?

Thank you in advance.

These days, isn't it ten mortgages? (Didn't "4 mortgages" go out the window years ago?)

My answer would thus be: yes, it would need to be before your 11th mortgage.

[Not an official response. Others may have better knowledge. If so, please respond]. Cheers...

Thanks @Brent Coombs for the reply. Yes the total limit is 10, but the requirements become more stringent on 5+ and I am just wondering if any such restrictions apply to FHA.

I’ve been told you can have 10 investment mortgages and the 11th can be for your primary. I’m unsure if the requirements change though

@Logan I. You can get an FHA loan at any time. You don't have to get it at a certain point. Just make sure you occupy the property and that you don't have more than one loan FHA loan...well, you could have more than 1 under certain circumstances but essentially you can have one at a time but at any point. Feel free to ask more questions if you need. Thanks!

Andrew Postell, Lender in Texas (#392627)
817-873-0621

@Logan I.

There is a restriction to the number of units that you own to be eligible for an FHA loan. 7 total units, including the subject primary residence. So, if all your 4 mortgages are duplexes - you won't qualify. If they are a SFR than at most you could purchase a triplex. Let me know if you have any other questions.

FHA Unit Restrictions - Chapter 4, Section B, page 13. 

Jerry Padilla, Lender in NY (#NMLS 1084877)
585-204-6923
Originally posted by @Jerry Padilla :

@Logan I.

There is a restriction to the number of units that you own to be eligible for an FHA loan. 7 total units, including the subject primary residence. So, if all your 4 mortgages are duplexes - you won't qualify. If they are a SFR than at most you could purchase a triplex. Let me know if you have any other questions.

FHA Unit Restrictions - Chapter 4, Section B, page 13. 

Does the following page have any bearing on that?:-

https://www.fanniemae.com/content/guide/selling/b3...

Speaking about "Reserves", one of the lines says: "6% of the aggregate UPB if the borrower has seven to ten financed properties (DU only)".

(What does "DU only" mean in this context?)

Either way, very useful to know that it's more about the number of doors owned, rather than the number of mortgages! Thanks Jerry...

@Brent Coombs

FHA is the different than Fannie Mae. Fannie Mae and Freddie Mac are conventional products. You can go up to a limit of 10 properties with conventional.

FHA is a low down payment program geared toward primary home purchases.

The Reserve requirement that you are referring to is for Conventional. DU means direct underwriting - also known as Fannie Mae requirement. 

Cash Reserve Requirements; (Fannie Mae) 

6 months PITI is required on subject property.

If you have 1-4 financed properties than it is now 2% of all unpaid principle balances.

If you have 5-6 financed properties than it is now 4% of all unpaid principle balances.

If you have 7-10 financed properties than it is now 6% of all unpaid principle balances.

Freddie Mac has a different cash reserve requirement:

6 months PITI is required on subject property

2 months reserves for SFR

6 months reserves for MFR

Jerry Padilla, Lender in NY (#NMLS 1084877)
585-204-6923
Originally posted by @Jerry Padilla :

@Logan I.

There is a restriction to the number of units that you own to be eligible for an FHA loan. 7 total units, including the subject primary residence. So, if all your 4 mortgages are duplexes - you won't qualify. If they are a SFR than at most you could purchase a triplex. Let me know if you have any other questions.

FHA Unit Restrictions - Chapter 4, Section B, page 13. 

 Thank you Jerry this is extremely helpful and exactly the info I needed.

One other note - the restrictions, down payment amounts, and reserve requirements are also determined by your bank. So, there are pass-through restrictions from FHA, Fannie, and Freddie, but your bank may also add some. I have 4 loans, 2 with one bank and 2 with another. The bank on the first 2 loans required 2 year seasoning on income properties and 30% down. The bank on the second 2 loans required 20% down with no seasoning and allowed (I believe) 80% of rent per an in-place lease to offset the mortgage. So, there's some good flexibility out there if you thread the needle with your bank.

@Jerry Padilla , you piqued my interest on this post. Are you saying that someone can’t finance use FHA financing or are you referring to special cases where private investors, including nonprofit organization may obtain FHA-insured mortgages?

I may have misunderstood the po’s question, but I think he’s question was whether there are any FHA restrictions for having multiple financed properties if he was to apply for an FHA financing on a primary home. If it’s owner occupied/ primary home, then there is no limit whether he’s buying a single family, condo, townhouse, row home, duplex, triplex, or 4 units. The borrower may only own one FHA financed property unless they meet one of the allowed exceptions...i.e. relocation, increase in family size, vacating jointly owned property, non-occupying co-borrower.

Of course, there are other caveats to meeting those exceptions but if the question here is there any restrictions for multiple financed properties, when using FHA financing to purchase a primary home, then the answer is - no, unlike agency loans that do have those restrictions.

Hopefully I didn’t misunderstand.

Paul Defngin, Lender in (#NMLS 199791)
240-268-3054

@Paul Defngin

If you click on the link, it is directly to the FHA guideline that restricts the number of units that FHA allows. This is coming directly from FHA. Fannie Mae and Freddie Mac do not restrict the limit if purchasing a primary residence, but FHA does. You are correct that they can only have one FHA financed property unless they meet the exception guidelines.

Here is the guideline copy and pasted - it is on the last page of the link to FHA's guidelines.

Qualified investor entities are limited to a financial interest (that is, any type of ownership, regardless of the type of financing) in seven rental dwelling units, when the subject property is part of, adjacent to, or contiguous to, a property, subdivision or group of properties owned by the investor. The units that count toward this limitation include 

each dwelling unit in a two, three, and four family property, and 

 the rental units in an owner-occupied two, three, or four unit property. Notes: 

 The lender is responsible for ensuring compliance with this regulation. 

 Waivers to the seven unit limitation can only be initiated by the jurisdictional HOC for good cause.

Jerry Padilla, Lender in NY (#NMLS 1084877)
585-204-6923

@Jerry Padilla

I think you and/or your underwriter is misinterpreting that 7 unit guideline. I don’t believe that is a blanket statement that prohibits more than 7 units. It explicitly states that there is a 7 unit limit ONLY when the borrower already owns units in or next to the same complex or subdivision as the subject property.

And I can understand why. It would seem rather fishy if an borrower already owned multiple units in a concentrated area and then wanted to buy another as owner occupied. Smells of occupancy fraud, using fha to purchase an addition rental.

But short of having 7 units in a concentrated area, I don’t think there is FHA limit on how many rental units one can own prior to getting a FHA loan.

I’m not a lender, just interpreting the guideline as I read it. I’m interested to hear other lenders opinions...

@John S Lewis and @Jerry Padilla , this is why I love this forum. Different experiences, opinions, and interpretations can sometimes be helpful, but sometimes can be NOT so helpful and in fact creates confusion.  @Jerry Padilla, thank you for the discourse on FHA guidelines.

"There is a restriction to the number of units that you own to be eligible for an FHA loan. 7 total units, including the subject primary residence. So, if all your 4 mortgages are duplexes - you won't qualify. If they are a SFR than at most you could purchase a triplex. Let me know if you have any other questions"

You - did- short of threw for a loop there with your statement above, but I have to say that I agree with @Eric G. that you and/or your underwriter have misinterpreted the 7 unit guideline.

Number one, the link that you referenced here is for guidelines out of 4155.1 published in 2011. Since then, many changes have taken place, so much so that the only HUD Handbook that underwriting and LO's such ourselves should reference is Handbook 4000.1, which can also be accessed

https://www.hud.gov/sites/documents/40001HSGH.PDF  

Number two, the current guideline can be found under Ch 2, Section A, #7 on page 148. See, I was not kidding when I said that things have changed :-)!

Number three, I think where you and/or the underwriter may have misinterpreted the guideline is that this Section where you are referring to Dwelling Unit Limitation is SPECIFICALLY aimed at Nonprofit Borrower, or a state and local government agency, or an Instrumentality of Government, who uses FHA financing to secure INVESTMENT Properties, which makes sense because...they are the only entities that can use FHA financing to buy investment properties, in return of offering them in their affordable housing programs. Nevertheless, the Dwelling Limit has nothing to do with a borrower that is using FHA financing to buy their primary home. 

Now, Logan, if you have 5 investment properties and you've never used FHA financing before and this is the only way that you can buy AFFORD to purchase your primary home then by all means I say go for it.

That said, FHA financing program is not meant to buy a home as a way around of putting a large down payment on a home that you're intent is to rent it in a year.  I don't know that anyone can police or hold you accountable for what your intent is, but remember this: FHA primarily serves those that cannot afford a conventional down payment or otherwise to buy their own home - to live in.  Period! 

If abused, I almost guarantee you that at some point, we will all pay for it in some form or another. It could be higher funding for the program, more restriction, some other taxes passed on to us, etc.   The point is that we have to be vigilant and careful about some of the advise carelessly offered (some in this forum), that promotes this idea of using FHA financing as a mean to control/leverage a property ONLY to convert it into an investment home a year later, just because it is allowed.  

Good luck.
Paul Defngin, Lender in (#NMLS 199791)
240-268-3054

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