- FHA, an agency within the Department of Housing and Urban Development, protects lenders against borrower default. In the event a homeowner fails to repay the mortgage debt, FHA reimburses the lender for its losses.
According to HUD Handbook 4155.1, for single-family residences, "A secondary residence is a property that a borrower occupies in addition to his/her principal residence." An FHA borrower may only own one secondary residence at any time. - FHA will insure mortgages on secondary residences when an undue hardship exists and the home's loan-to-value is 85 percent of the lesser of its appraised value or sales price (when purchased by the borrower).
An undue hardship exists when the borrower must move due to an increase in family size and there is no affordable housing for lease in the borrower's area. An applicable HUD Homeownership Center (HOC) must verify that affordable housing within reasonable commuting distance for the borrower is not available. - A secondary home must meet the following conditions to qualify for FHA insurance: the home may not be a vacation home or used for recreational purposes, and the reason for obtaining the property must be the result of employment relocation or seasonal employment.
The HOC determines a lack of affordable housing in the area by reviewing credible documentation on the lack of affordable rental housing in the area. Local real estate professionals in the borrower's area may provide written evidence verifying the lack of affordable housing. - When requesting an exception for undue hardship from FHA, borrowers must submit a letter to HOC through their FHA-approved lender. The FHA Direct Endorsement lender is not allowed to grant a hardship for a secondary residence, says the Handbook.
HUD has four HOCs, each of which has jurisdiction over FHA insurance programs in multiple states.
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