Buying a home is an exciting process, and as soon as you get pre-approved, we know you’re
eager to get out and start searching. BUT, there are some things you need to know depending
on what kind of loan you’re pre-approved for.
If you are approved for an FHA loan, there are some restrictions in place for what you can and
can’t buy, what kind of down payment you can do, and things you have to watch out for. Let’s go
through them together!
What Is An FHA Loan? – An FHA loan is a home loan that is a mortgage that is insured by the
Federal Housing Association (hence FHA).It is issued by an FHA-approved lender. They are
designed for low-to-moderate-income borrowers. They usually require a lower minimum down
payment and lower credit score than most conventional loans, this makes it more accessible for
first time home buyers.
What Are The Pros and Cons? – There are a few pros and cons to FHA financing. The biggest
pros are that you can buy a home with a credit score of 580 and as little as 3.5% down. If you
can put 10% down, you can buy a home with a credit score as low as 500, but it can be tough.
But there are some cons, you have to pay mortgage insurance, you have to pay a chunk up
front (around 1.75% of the total loan amount) or you can roll that amount into the loan, and then
you pay around 0.45%-1.05% of the loan amount monthly too. That can put your monthly
mortgage payments up a bit. Another con is there are certain restrictions on the kind of
properties you can buy, we’ll go over those next.
Can I Buy A Fixer With FHA? – Unfortunately, fixers are a tricky one for FHA loans. FHA has
certain requirements when buying a home, to make sure it’s in proper working condition. This
means you can’t go all Chip and Joanna Gaines and buy a run down farmhouse and turn it into
your dream ranch home. All homes that are going FHA must have health and safety issues
repaired, this could be holes in the floors/walls that have to be filled in or patched, electric wires
being covered if they’re exposed, etc. This can turn some sellers off to FHA financing, if they
don’t want to have to fix anything, they can say they don’t want FHA buyers (mostly because
they know it won’t qualify for FHA financing). Which brings us to my next point…
How Will I Know If Something Is FHA Approved? – Well, this can be easier said than done.
Some listing agents/sellers will know already that it can’t go FHA, and in the terms listed in MLS,
it will list what financing is available. BUT, you can’t always trust this! Sometimes agents and
sellers forget, or sometimes the home has been sitting for a while, and now they may consider
an FHA buyer because they want to get it sold. There really is no way to know for absolute sure
until you go see the property in person or you write an offer and get it accepted and see what
the appraiser calls out. Some homes will be obvious they can’t go FHA (holes in garage
doors/broken roofs/complete gut jobs), but some you may not know until the appraiser walks
Flip Home Restrictions – You’ve seen a home you like, it’s been completely remodeled and
now it’s up for sale. Has it been 90 days since it was last sold? If the answer is no, you can’t buy
it. There are rules that do not allow homes that have been flipped in the last 90 days to go FHA.
Once it hits 91 days, it can go FHA but there are still some restrictions. If you are between 91
and 180 days, you have to determine if the property you’re looking at is being sold for a 100% or
more higher than what the seller paid for it, and if you have a higher priced loan and if the sales
price is 20% more than the seller’s paid for it. If the answers are yes, then you have to get
another appraisal, this is to make sure nothing fraudulent is happening!
I Want To Buy A Condo – You’ve decided you don’t want a single family home, you want to buy
a condo instead, that’s great! But make sure that whatever condo community you’ve fallen in
love with qualifies for FHA financing. Not all of them will take FHA financing, so it’s important
that your agent double checks before you go view one and fall in love.
To conclude, there’s a lot to think about when looking at the financing for buying a home but
don’t let it overwhelm you. Your lender and your agent are here to guide you and educate you,
and they will not let you go astray. They’ll make sure every home they take you to see qualifies
for FHA, so you don’t risk falling in love with something you can’t actually buy!