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Understanding the FHA 100 Mile Rule

FHA loans stand out as a beacon for many first-time homebuyers, offering a path to homeownership with less stringent qualifications and down payments. Yet, nestled within the FHA’s guidelines is a little-known stipulation that can have a big impact on your buying journey—the FHA 100 Mile Rule.

This rule often flies under the radar until it’s time to make a move—quite literally. It’s a regulation that draws a boundary, a 100-mile radius, that can either open up opportunities or impose constraints on where you can plant your next set of roots using an FHA loan.

In this article, we’re going to unravel the intricacies of the FHA 100 Mile Rule. From why it exists to how it affects those looking to move closer to work or expand their living space, we’ll explore the nuances that make this rule a critical checkpoint in the roadmap to acquiring your new home. So, let’s navigate through the specifics, carve out the exceptions, and equip you with the knowledge to steer clear of potential roadblocks on the way to your next home purchase.

What is the FHA 100 Mile Rule?

Embarking on the home buying process with an FHA loan in your toolkit, you might stumble upon a regulation that could dictate the coordinates of your new dwelling—the FHA 100 Mile Rule. But what exactly is this rule?

Simply put, the FHA 100 Mile Rule is a policy from the Federal Housing Administration that requires a certain distance between a buyer’s new home purchased with an FHA loan and their previous residence. To be exact, your new FHA-financed home must be over 100 miles away from your old one if you wish to obtain an FHA loan without selling the first property.

This rule is not just a random stipulation—it’s designed with a purpose. The FHA aims to ensure that its loans are used for primary residences, not investment properties or vacation homes.

By setting this 100-mile boundary, the FHA discourages borrowers from using its loan program to buy multiple homes in close proximity, which could otherwise lead to the misuse of the loan for non-primary residence purposes.

The rule is rooted in the FHA’s mission to promote homeownership among those who may not have the means to make large down payments or have perfect credit scores. It safeguards the integrity of the program by ensuring that it benefits genuine homeowners.

Whether it’s a change in job location or simply a desire for a different scenery, this rule will play a pivotal role in your ability to secure another FHA loan for your next house-hunt.

As we proceed, we’ll dissect the requirements and the rationale behind the rule, its impact on homeowners, and the situations in which you can bend it without breaking your homeownership goals.

Have you heard of the FHA flipping rule?

Requirements and Stipulations

When delving into the details of the FHA 100 Mile Rule, it’s essential to understand the specific requirements and stipulations that accompany it. This rule is not just about distance; it’s also about the intent behind the move and the circumstances surrounding it.

Primary Residence Requirement

At its core, the rule is straightforward: if you’re purchasing a new primary residence using an FHA loan, the property must be located at least 100 miles from your current home. This distance requirement is the first checkpoint in determining your eligibility.

Employment-Related Relocation

Moreover, the new property must indeed be your primary residence. This means you will be living there most of the year; it’s where you’ll send your kids to school, and it’s the address you’ll use for your tax returns. The FHA takes this requirement seriously to prevent the misuse of its loans for investment purposes.

Documentation and Evidence

To comply with these stipulations, borrowers must provide ample evidence. This could include documentation of a job transfer, employment offer in a new city, or any other official records that substantiate the employment-related necessity of the move.

Implications of Non-Compliance

Failure to adhere to these requirements can lead to complications with your FHA loan. The FHA is vigilant in preventing borrowers from using its program to acquire investment properties, and thus, the consequences of not following the 100 Mile Rule can be substantial.

In summary, the FHA 100 Mile Rule isn’t just about geographic distance; it’s a measure to ensure that FHA loans facilitate homeownership for those who are genuinely relocating. In the next section, we’ll examine the impact this rule has on homeowners and how it shapes your ability to buy and sell properties under the FHA umbrella.

Exceptions to the rule

The FHA 100 Mile Rule, while strict, does have built-in exceptions that offer flexibility to homeowners under certain circumstances.

Understanding the Four Main Exceptions

  1. Relocation: If you’re relocating for a job and the commute from your old residence is not reasonable, you may qualify for an exception. Documentation of your new employment and the impracticality of commuting will be required.
  2. Increase in Family Size: A growing family can necessitate a larger home. If your current residence no longer fits your family’s needs, this may allow you to obtain an FHA loan for a property that’s less than 100 miles away BUT the Loan-to-Value (LTV) ratio on the current Principal Residence must be equal to or less than 75% or is paid down to that amount, based on the outstanding Mortgage balance and a current residential appraisal.
  3. Vacating a Jointly-Owned Property: In cases of divorce or separation, if you’re vacating a property you co-own and need to purchase a new primary residence nearby, you may be exempted from the 100-mile requirement.
  4. Non-Occupying Co-Borrower: If you are a co-borrower on an FHA loan for a property you do not reside in, you may be able to purchase your own primary residence with an FHA loan without the distance restriction. 12 months of payment history and a copy of the note will be required to document the non-occupying vo-borrower status.

Applying for an Exception

To apply for an exception, you’ll need to provide:

  • Detailed and documented proof of your circumstances.
  • A letter explaining your situation and the necessity of an exception.
  • Supportive documents such as legal papers, job offer letters, or proof of your growing family.

Obtaining an exception to the FHA 100 Mile Rule can be challenging, as not all lenders may be willing or able to accommodate such requests. While the FHA provides for exceptions, lenders have discretion in their underwriting processes and are not obligated to grant them.

More info on the rule can be obtained by the FHA website here: https://www.allregs.com/tpl/Search#q=100%20mile%20rule

Case Studies

To truly grasp the impact of the FHA 100 Mile Rule and the viability of its exceptions, examining real-life scenarios can be invaluable.

Case studies provide concrete examples of how the rule functions in practice and how certain homeowners have successfully navigated it to fulfill their housing needs.

Case Study 1: Job Relocation

Consider the case of a family who obtained an FHA loan for a home close to their workplace. Two years later, a job opportunity required them to move to another city 85 miles away. Despite being under the 100-mile threshold, they successfully applied for an exception to the rule due to the unreasonable daily commute. This example demonstrates the rule’s flexibility for employment-related relocations.

Case Study 2: Growing Family Needs

Another scenario involved a couple whose family size increased significantly after the birth of twins, making their current two-bedroom home insufficient. They needed to move to a larger home just 60 miles away. By documenting their expanded family’s needs, they were granted an exception, illustrating how changes in family size can be considered under the rule.

Case Study 3: Divorce and Property Division

A more complex situation arose when an individual, post-divorce, needed to move out of a jointly-owned property and find a new primary residence within the same city. Given the legal circumstances and the need to establish a separate household, they were exempted from the 100-mile requirement, highlighting the rule’s accommodation for personal legal changes.

Case studies like these underscore the fact that while the FHA 100 Mile Rule is stringent, there is room for maneuvering within its boundaries. They demonstrate that with the right circumstances and documentation, the path to securing a new FHA loan for a second home is navigable, even within the 100-mile limit.

Alternatives to the FHA Loan

While the FHA loan program is a popular route to homeownership, especially for first-time buyers, the FHA 100 Mile Rule might make it less viable for some. When this rule poses a hurdle, exploring alternatives to FHA loans can offer other avenues for purchasing a home.

Conventional Mortgages

Conventional loans are a common alternative and do not carry the same occupancy restrictions as FHA loans. They typically require a higher down payment and credit score, but for those who qualify, they offer greater flexibility in property investment and ownership.

Check out the 3% down payment Conventional loan.

VA Loans

For veterans and active military members, VA loans present a strong option. Like FHA loans, they offer competitive interest rates and the possibility of 0% down payment without the strict property distance restrictions.

USDA Loans

USDA loans cater to buyers in rural and some suburban areas and are geared towards those with moderate to low incomes. They can provide 100% financing and have different eligibility requirements than FHA loans.

HomeReady and Home Possible Loans

Programs like Fannie Mae’s HomeReady and Freddie Mac’s Home Possible are designed for low to moderate-income buyers and offer down payments as low as 3%. These programs come with their own set of requirements but can be excellent alternatives to FHA loans.

Non-QM Loans

For those with non-traditional income or who are self-employed, non-qualified mortgage (Non-QM) loans such as the bank statement loan might be a solution. These loans offer more flexible qualification criteria at the cost of higher interest rates.

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