A few days back, we received a call from a reader asking if an FHA loan would limit his Jacksonville home buying options. Though we answered all of his questions, it occurred to us that many people considering an FHA-insured loan may not know whether or not certain homes for sale qualify for FHA financing. As a result, we’ve decided to write a blog post on how FHA loans limit home buying options.
Minimum Property Standards for FHA Loans
Requiring a 3.5-percent down payment, carrying lower interest rates and having more flexible eligibility criteria than other mortgages, FHA loans have become a popular financing alternative among U.S. homebuyers. However, the FHA remains strict with the rules regarding minimum property standards, rejecting loan applications for homes that can be hazardous to occupants.
The FHA issued a set of appraisal guidelines properties must meet in order to be purchased with an FHA-insured home loan. Here is a brief description of these guidelines:
- a licensed, HUD-approved appraiser must complete a visual inspection of the interior and exterior of the property;
- the roof, foundation, basement/crawl space, attic, ventilation, heating and mechanical systems must be in good working condition;
- utilities (e.g. water, electricity, gas and sewage) must be turned on/functional;
- the appraiser must take photographs of all sides of the house and describe improvements/upgrades and deficiencies (e.g. peeling, flaking and/or chipping paint, floor defects, excessive dampness, mold growth, foundation problems, etc.);
- he must also specify whether the ground surface slopes away from or toward the house;
- stairways/steps must have handrails;
- each bedroom must have a method of egress that can be used as an exit point;
- the appraisal report must conclude that the home provides a healthy and safe living environment or list the repairs/improvements the seller must make for the property to be approved for FHA funding;
- the report should include photos of comparable properties that were recently sold in the neighborhood;
- the appraiser must provide a street map indicating the location of the home.
In addition, a home can be rejected if it doesn’t meet the standards specific to the type of property. As an example, the FHA will approve loans for a manufactured home only if the unit is permanently affixed to its foundation and titled as real property. Additionally, an FHA-insured loan for a condominium will be approved only if the condo is in a HUD-approved complex that meets HUD’s Model Building Codes and Minimum Property Standards.
Based on the appraisal report, the lender may ask the seller to correct certain deficiencies. In Jacksonville, FL, for instance, a lender may require a seller to treat his house for wood-destroying pests if the report shows rot or termite damage. If the seller makes the necessary repairs to the appraiser’s satisfaction, the FHA will approve the loan and the deal can be closed. By doing this, lenders offer homebuyers more Jacksonville home buying options.
One important point to keep in mind is that the FHA will reject any property that presents serious safety issues that cannot be fixed easily (e.g. extensive structural or roof damage, bedrooms lacking a means of egress, excessive moisture, uncontrolled mold growth, etc.). Though an FHA loan does limit Jacksonville home buying options, the advantage is that it won’t allow a homebuyer to buy an uninhabitable house.
To learn more about FHA loans, feel free to contact us at North Florida Mortgage. Besides offering you all the information you need for assessing your borrowing options, our mortgage originators can tailor custom solutions to best fit your specific needs, regardless of whether you’re building, buying or refinancing.
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