My wife and I were talking last night and she actually brought up an idea I didn't have an answer to. I'm sure someone here knows.
I bought my current residence in '08 via an FHA loan. I recently got married to my wife, who's never owned a home.
Could we apply for an FHA through her, since she has never personally held property? Or is she ineligible for an FHA now that we're married?
We thought maybe this would be a strategy worth considering if it were possible. I have a feeling it's a no-go, though.
I believe there are maybe 8 states or more where the debt of the spouse is counted for the debt-to-income ratio with FHA loans. I know Washington and California are 2 of the states. It will require a credit report for both people. The credit score of the spouse won't matter as much as the debt, but the debt is counted towards the overall debt-to-income ratio and the debt load for credit accounts that aren't joint.
The non-purchasing spouse won't sign the Note, but will need to sign the Truth in Lending and Deed of Trust at closing.
Conventional loan may be a better option depending on your circumstances.
Obviously this is only what I've learned from researching in my own home buying process. If any of the above is inaccurate please let us know in the comments below.
An FHA loan is for owner occupants only, not for rental properties, unless you buy a 2-4 unit and move into one of the units.
I had the same scenario after I got married. I asked my banker that [same question] and was told no go.This was in TN. YMMV.
@Brock Lile , If she is buying the new home as an owner occupied home, then yes, she can take out an FHA mortgage for that home in just her name. Even though Washington is a community property state, you can still do things individually.
The existing home has had a year or more as owner occupied, so there is no issues with making that a rental at this point. In order to count the rents that will be coming in off the existing home, see the guidelines below. If you don't meet these guidelines, then you must debt ratio with both mortgages without rental income to offset any of it. Also, because she's doing the mortgage in just her name, the lender must pull both credit reports and count your debt into the debt ratio, only on FHA mortgages, not on conventional mortgages.
Another way this can be done is to buy the new home with either one or both of you on the loan as owner occupied. You can get up to 100% financing for the new home, and if the new loan is a conventional mortgage, i.e. a Fannie Mae loan, then you would use the following guidelines in counting rents.
Obtain a rental agreement for the property prior to closing on your new primary residence. You must also have received the 1st months payment and deposit that you can show proof you received. The lender will take the gross amounts of the monthly rental income X .75% or a 25% vacancy factor for things like maintenance, vacancy, management and CAP X. They will then take the other 75% of the rents and subtract the PITI mortgage payment of that home. If its a positive number, that amount gets added to your income. If its a negative number, that amount gets added to your debt. Most rentals are very close to debt neutral, so they don't tend to add much if anything to a persons debt ratio.
You must also have 2% of the outstanding balance of the mortgage of the rental as reserves. So if you owe $200,000 in outstanding balance, then its $200,000 X 2% or $4,000 as reserves. If you can debt ratio and have the proper amount of reserves and have the correct minimum credit score of 580 for FHA or 620 for convesntional, then your good to go.
I hope this helps.
Updated over 3 years ago
To clarify, you will obtain the rental agreement for the property that you are vacating, before you close on your new owner occupied home.
Updated over 3 years ago
Also as a further clarification. To buy a investment property using an FHA loan, would mean that your going to buy a 2-4 unit property. You must owner occupy one of the units for 1 year before you can rent out the unit that you were living in. The property must be considered owner occupied even though it is a 2-4 unit property.