- FHA insurance protects lenders by reimbursing them if the borrower defaults on the mortgage. FHA's single-family insurance program for one- to four-unit dwellings is its most popular, and is made for borrowers who intend to occupy the property as their principal residence for the majority of the calendar year. At least one borrower obligated on the loan must establish occupancy in the home within 60 days of signing the security instrument and mortgage note, says HUD Handbook 4155.1.
- In an effort to prevent investors from using FHA financing on rental property or to quickly resell homes at a profit, also known as flipping, FHA "generally will not insure more than one mortgage for any borrower," says the Handbook. Furthermore, any person who individually or jointly owns a property covered by an FHA-insured mortgage may not assume another FHA loan for a principal residence or investment purposes. The rule applies to purchase or refinance transactions.
- "We do not object to homebuyers using FHA mortgage insurance more than once if compatible with the homebuyer's needs and resources," says the Handbook. The borrower seeking a simultaneous FHA-insured loan for a principal residence must prove extenuating circumstances which compels her to purchase elsewhere. Acceptable circumstance are limited to: the borrower is relocating to an area not within reasonable commuting distance of her existing FHA-encumbered property; the family size has increased to the point that the current home no longer meets its needs; or a co-borrower is vacating the encumbered home for a new primary residence, as is the case in many divorces.
- If a borrower applied for an FHA mortgage as a non-occupant co-borrower for qualifying purposes of the primary borrower, the non-occupant may obtain another FHA loan for his own primary residence. In order to circumvent investor use of its insurance under the exceptions, FHA scrutinizes a borrower's motives, taking into consideration the length of time the previous property was owned and the circumstances that compel him to purchase another residence with an FHA-insured mortgage. FHA requires him meet certain conditions, such as providing satisfactory evidence that the number of dependents has increased and paying down the principal balance to 75 percent loan-to-value, according to the Handbook.
mortgage.