Federal Housing Authority (FHA) loans are mortgage loans administered by private banks, but with guarantees from the U.S. government that the loan will be paid. This enables banks to lend money for mortgages with very low down payments and with relatively low interest rates. These loans have strict rules governing them, including rules about how you use the home and how often you may take out an FHA-backed loan.
Basic FHA Lending Guidelines
Unlike other mortgage programs, FHA loans do not base qualification on a FICO credit score. Instead, they require that prospective buyers meet the following criteria: at least two years steady employment with stable or increasing income; all bankruptcies at least two years in the past and foreclosures at least three years in the past, with perfect credit since; no credit score lower than 620 with no more than two 30-day late payments in the previous two years; mortgage payments of no more than 30 percent of gross income. These criteria apply as of 2011 and are subject to frequent change. However, in general, prospective homeowners who maintain or are working toward good credit and who have stable employment can qualify for most FHA loans.
Special Home Use Rules
FHA home loans are for a homeowner's primary residence only. In other words, if you take out an FHA loan, you must live in the home, whether it is a single-family home or a fourplex apartment with the other units rented out. While there is no hard-and-fast limitation on how long you must live in the home, you must demonstrate in good faith you intend to maintain it as a primary residence when you take out the loan.
Types of FHA Loans
There are several types of FHA loans. The most commonly used is the Section 203B Insured Mortgage, which is the basic FHA-guaranteed loan designed for up to a four-family dwelling that the buyer intends to occupy immediately upon closing. Other common FHA loans include the Section 255 Home Equity Conversion Mortgage, often called a reverse mortgage, and the Section 203K Rehabilitation Mortgage. In certain circumstances, a borrower may hold more than one of these mortgages simultaneously, provided she has satisfied all FHA requirements. For example, she might take out a standard 203B Insured Mortgage, then a year or two later be approved for a 203K Rehabilitation Mortgage to address emerging problems with the home.
No Limits to Taking Out FHA Loans
Provided you have met all the rules and criteria, you may take out an FHA loan as often as you wish. There are a few restrictions with regard to earlier FHA loans. You must plan to live in the home with the new FHA-backed mortgage, and you must not be in default on an earlier FHA loan or otherwise owe the FHA money. You also must have at least 25 percent equity in your most recent FHA loan. Your private lender and your state may have other requirements as well.