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Understanding FHA’s 100 Mile Rule
When You Can Keep Your Current Home and Get Another FHA Loan
If you currently have an FHA loan and are considering buying another home, you’ve probably heard about FHA’s “100 Mile Rule.” This guideline is one of the most misunderstood aspects of FHA lending, causing confusion for both borrowers and even some loan professionals. Let us break down exactly what this rule means and when it applies to your situation.
What Is the FHA 100 Mile Rule?
The FHA 100 Mile Rule isn’t actually a single rule – it’s really two separate scenarios that involve distance requirements and rental income guidelines. Understanding the difference is crucial for anyone looking to maximize their FHA loan benefits.
Scenario 1: Getting a Second FHA Loan Scenario 2: Using Rental Income from Your Current Home
Let’s dive into each scenario so you can understand how they might apply to your situation.
Scenario 1: Qualifying for a Second FHA Loan
Normally, FHA limits borrowers to one FHA loan at a time. However, there are specific exceptions that allow you to obtain another FHA-insured mortgage without selling your current FHA-financed property. Here are the four main exceptions:
Employment-Related Relocation
You can get a second FHA loan if you’re relocating for work to an area more than 100 miles from your current home. This is where the “100 mile” terminology comes from. The key requirements are:
- The move must be employment-related
- Your new primary residence must be more than 100 miles away
- If you later move back to the original area, you can get another FHA loan for a new home (you don’t have to move back into your original house)
Increase in Family Size
Life changes, and sometimes your current home no longer fits your needs. You can qualify for another FHA loan if:
- You’ve had an increase in legal dependents (children, adoption, foster care, marriage combining households)
- Your current property no longer meets your family’s needs
- The loan-to-value ratio on your current home is 75% or less (meaning you have at least 25% equity)
Vacating a Jointly-Owned Property
This exception applies when you’re leaving a property but a co-borrower will remain. Common situations include:
- Divorce where one spouse keeps the marital home
- Unmarried co-owners where one person is moving out
- The departing owner has no intent to return
Non-Occupying Co-Borrower
If you were a non-occupying co-borrower on someone else’s FHA loan, you can still get your own FHA loan for your primary residence. Similarly, if you have an FHA loan on your own home, you can be a non-occupying co-borrower on other FHA loans.
Scenario 2: Using Rental Income from Your Current Home
Here’s where things get more complex and where many people get confused. If you want to keep your current home and use its rental income to help qualify for your new mortgage, additional rules apply – regardless of what type of loan you’re getting on the new property.
The 100 Mile Requirement for Rental Income
To use rental income from a property you’re vacating, you must be moving more than 100 miles away. Unlike the employment relocation exception above, this move doesn’t need to be job-related, but the distance requirement is non-negotiable.
Equity Requirements Matter
The equity requirements depend on whether you have a rental history:
No Previous Rental History:
- You need at least 25% equity in the rental property
- An appraisal is required to determine market rent and confirm equity
- All liens count toward the loan-to-value calculation
Documented Rental History:
- If you have rental income from the previous tax year on units you didn’t occupy
- You don’t need the 25% equity requirement
- This applies to 2-4 unit properties and ADUs with documented rental history
Important Things to Remember
Real-World Example
Let’s say you bought a duplex with an FHA loan three years ago in Philadelphia, and you’ve been living in one unit while renting out the other. Now you’re getting married and want to buy a single-family home in Pittsburgh (about 300 miles away) using another FHA loan.
Since you’re moving more than 100 miles away, you qualify for the relocation exception for a second FHA loan. Additionally, since you have documented rental history from both units and you’re moving more than 100 miles away, you can use the rental income from both units to help qualify for your new mortgage.
Get Professional Guidance
FHA’s guidelines can be complex, and every situation is unique. The interplay between these rules, combined with your specific circumstances, requires careful analysis to ensure you’re maximizing your options while staying compliant with FHA requirements.
At Innovative Mortgage Brokers, we specialize in navigating complex mortgage scenarios. With access to a network of 30+ lenders, we can tailor the perfect mortgage solution for your unique financial needs, all at competitive rates and low fees. We don’t answer to the lenders; we answer to you! Your interests come first, every time.
Whether you’re a first-time homebuyer, looking to upgrade your current home, considering a refinance, or exploring real estate investment opportunities, our team provides personalized guidance throughout the entire mortgage process. We understand that every client’s situation is different, which is why we take the time to explain complex guidelines and help you understand all your options.