FHA Underwriters are you up to speed with the exceptions for a Second FHA loan

Written By: Glenn Michaels, Op-Ed Writer

The FHA permits only one FHA mortgage at a time for a borrower except for four (4) exceptions. This past week I received a FHA loan that had one of the four exceptions and the borrower does not appear to meet what is required. Below are the four exceptions and what you the underwriter must follow up in order to qualify for a second FHA mortgage:

Relocation: A borrower may be eligible to obtain another FHA mortgage without being required to sell another property if the borrower is:

•    Relocating or has relocated for an employment related reason: and
•    Establishing or has established a new principal residence 100 or more miles from the current residence.

Increase in family size: A borrower may be eligible for another FHA mortgage if there is an increase family size.  The borrower must demonstrate that the family size has increased from the time the first FHA mortgage loan was done. The problem for most borrowers and my loan last week the loan to value on the current home must be 75% or can be paid down to 75%. My borrower was able to provide evidence that the family size increased. However the borrower cannot provide evidence that the loan to value on the current home is 75% or can be paid down to 75%.

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Vacating a jointly owned property: A borrower may be eligible for another FHA insured mortgage if the Borrower is vacating (with no intent return) the principal residence which will remain occupied by an existing co – borrower.

Non – Occupying co – borrower: A non – occupying co – borrower on an existing FHA insured mortgage may qualify for an FHA insured mortgage on a new property to be their own principal residence.

There are no other reasons that a FHA borrower can have in order to obtain a second FHA loan at the time of application.

These exceptions do not occur often, but all underwriters must recognize when these situations occur and how to handle it.

My loan is being held up for the proof that the existing home has at least a 75% equity position or the loan is one that will not qualify.

Learn the exceptions or you might have a buy back or a loan to indemnify against loss.

About The Author

Glenn Michaels - As an NAMP® Opinion Editorial Contributor, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years. 

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.