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This month, we are introducing a new column for questions relating to starting a business, managing a business, training, networking, tax-related issues, corporate security policy, fraud alerts and compliance. All answers are for informational purpose only, and are not intended to practice law, or are meant to provide tax advice or tax opinions. After reviewing our information, we both recommend seeking legal counsel or the advice of a tax professional. Please e-mail us at [email protected] to voice any questions or problems. We are here for you!
Betsy from Tampa, Fla. asks …
Can you have two FHA loans? My customer already has one in Puerto Rico and now is moving to Florida and he wants another FHA loan without paying off the first one.
Eric & Laura’s reply to Betsy …
Reprinted from the FHA Handbook 4155.1: 4.B.2.c-d:
To prevent circumvention of the restrictions on FHA-insured mortgages to investors, FHA generally will not insure more than one mortgage for any borrower (transactions in which an existing FHA mortgage is paid off and another FHA mortgage is acquired are acceptable). Any person individually or jointly owning a home covered by a mortgage insured by FHA in which ownership is maintained may not purchase another principal residence with FHA mortgage insurance except under the situations described below. Properties previously acquired as investment properties are not subject to these restrictions.
FHA will not insure a mortgage if FHA concludes that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining investment properties, even if the property to be encumbered will be the only one owned using FHA mortgage insurance.
We do not object to homebuyers using FHA mortgage insurance more than once if compatible with the homebuyer's needs and resources as follows:
A. Relocations. If the borrower is relocating and re-establishing residency in another area not within reasonable commuting distance from the current principal residence, the borrower may obtain another mortgage using FHA insured financing and is not required to sell the existing property covered by an FHA insured mortgage. The relocation need not be employer mandated to qualify for this exception. Further, if the borrower returns to an area where he or she owns a property with an FHA insured mortgage, it is not required that the borrower re-establish primary residency in that property in order to be eligible for another FHA insured mortgage.
B. Increase in family size. The borrower may be permitted to obtain another home with an FHA insured mortgage if the number of legal dependents increases to the point that the present house no longer meets the family's needs. The borrower must provide satisfactory evidence of the increase in dependents and the property's failure to meet the family's needs. The borrower also must pay down the outstanding FHA mortgage (secondary liens do not need to be paid off or paid down) on the present property to a 75 percent or lower loan to value (LTV) ratio. A current residential appraisal must be used to determine LTV compliance. Tax assessments, market analyses by real estate brokers, etc., are not acceptable as proof of LTV compliance.
C. Vacating a jointly owned property. If the borrower is vacating a residence that will remain occupied by a co-borrower, the borrower is permitted to obtain another FHA insured mortgage. Acceptable situations include instances of divorce, after which the vacating ex-spouse will purchase a new home, or one of the co-borrowers will vacate the existing property.
D. Non-occupying co-borrower. A non-occupying co-borrower on property being purchased with an FHA insured mortgage as a principal residence by other family members may have a joint interest in that property as well as in a principal residence of their own with an FHA insured mortgage. (See HUD Handbook 4155.1 for additional information). Under no circumstances may investors use the exceptions described above to circumvent FHA's ban on loans to private investors and acquire rental properties through purportedly purchasing "principal residences.”
Considerations in determining the eligibility of a borrower for one of these exceptions are the length of time the previous property was owned by the borrower and the circumstances that compel the borrower to purchase another residence with an FHA insured mortgage. In all other cases, the purchasing borrower either must pay off the FHA insured mortgage on the previous residence or terminate ownership of that property before acquiring another FHA insured mortgage.
Eric and Laura both believe your client would fit the exception for relocation, and should be able to have two FHA loans.
Sonya from Detroit asks …
I have a thought-provoking question. I recently told a client I could not pre-approve her based on the items listed below. Now she tells me she's closing on her home tomorrow with another lender. How can that be?
1) She did not want to give me her divorce decree.
2) Her mother gives her $1,000 in cash every month to just “help her out” and she wanted to use that as income.
3) Her business income shows losses for the last two years, but she insists it is a “cash business.”
Eric’s reply to Sonya …
That’s odd! She sure put in a lot of work with you doing an application and such for a loan she must have already gotten an approval on and was working with another loan officer all along.
Here’s one possible scenario: She is lying! You are probably the third loan officer to turn her down and she said that just to screw with you. There are no magical loans or loans other lenders can do that you cannot. Just have confidence in yourself.
Laura’s reply to Sonya …
Perhaps she furnished the missing information to the other loan officer, such as a divorce decree with usable alimony or child support; of which you did not have information.
The money her mother gave her every month is documentable and could be used as a gift towards the downpayment.
I am not sure I understand your statement above about showing losses and cash business. Cash businesses are reportable, taxable income. If what you are trying to say here is that it is a paper loss, such as depreciation, then yes, that loss can be added back in to income to reduce loss or a positive income.
Therefore, without seeing all of the facts, it puts you in the dark and at a complete loss … chalk it up and move on as it’s not worth your time to think about.
Larry in Ohio asks …
I have a client with a tax lien on their credit report. Can my client still purchase a house? It is only against them personally since they don’t own any other properties.
Laura’s reply to Larry …
I don’t believe any lender would accept them as qualified borrowers, even if their credit scores were still high somehow. An IRS tax lien takes precedence over all other liens, so as soon as they purchased the property, the IRS would move to file the lien against their new property, in front of the lender’s lien. So on a purchase, this isn’t going to happen.
I have seen on refinance situations where after a lot of effort, the IRS will agree to subordinate their lien to the lenders first in order to make it easier for the taxpayer to continue to pay off the IRS tax lien.
Remember, the IRS is the only government entity allowed to tote guns, tell its clients whatever is necessary to get their money, garnish your wages and withdraw money from your bank account without a court order. It’s simple, “You don’t mess with the IRS!”
Eric’s reply to Larry …
No … they can’t.
Eric & Laura welcome your questions, please send your inquiries to [email protected].
Disclaimer: All answers are for informational purpose only, and are not intended to practice law, or provide tax advice or tax opinions. After reviewing our information we recommend seeking legal counsel or the advice of a tax professional.
Eric Weinstein worked in banking, on the commercial real estate side until 1991, when he fell in love with residential lending. He may be reached by phone at (703) 505-8692 or e-mail [email protected]. Laura Burke is an author and trainer with 20-plus years of experience in the mortgage marketplace. She may be reached by e-mail at [email protected].
This article orginally appeared in the August 2015 print edition of National Mortgage Professional Magazine.