"Conventional loans have higher minimum requirements than FHA and require a larger down payment," Yates said. "Sellers prefer a buyer with conventional financing over FHA financing because they feel the buyer is in a better financial position."
FHA loans let the seller pick up as much as 6 percent of the value of the home to pay the buyer's closing costs, making it easier for the buyer to afford the house.
Sellers often prefer conventional buyers because of their own financial views. Because a conventional loan typically requires higher credit and more money down, sellers often deem these reasons as a lower risk to default and traits of a trustworthy buyer.
An FHA-approved appraiser ensures that the home meets the government's safety and livability standards. The rules aren't onerous, but are a bit more strict than those that apply to some other loan types. FHA appraisal requirements can seem a little intimidating since they're key to getting your FHA mortgage.
Checklist of FHA appraisal requirements
Must have safe and reasonable property access. Must not contain loose wiring and exposed electrical systems. Must be free from damaged underground storage tanks and soil contaminants. Must have a working, permanent heating system that can heat the property adequately.
Sellers often believe, too, that buyers who need a lower down payment might not be able to afford any home repairs. Sellers worry that FHA buyers because of their lack of cash might be more willing to walk away from an offer if the home inspection turns up any problems. For FHA buyers, these are both cause for concern.
Borrowers who take out FHA loans will likely face higher costs upfront and with every payment, and it could signal that they aren't ready for a mortgage. You'll also have to pay mortgage insurance, and FHA loans are less flexible than conventional loans.
Properties May Be Too Close to Potential Hazards
If a home is too close to a high-pressure gas pipeline, high voltage electrical wires, mining or drilling operations or other hazards, it may not be possible for your lender to approve the loan.
Factors Affecting Timelines
Variables that prolong FHA closing to between 45 days and 60 days include a high number of applications with the lender; incomplete or inaccurate loan application or supporting paperwork; and appraisal problems such as a low value or needed repairs on the home.
Strengthening an offer
Increasing the deposit, if possible, can often make an offer more appealing to sellers. Writing a letter to the sellers about how much you love their home can sometimes help, too, although these “love letters” do not always make it to the seller.
How often do underwriters deny loans? Underwriters deny loans about 9% of the time. The most common reason for denial is that the borrower has too much debt, but even an incomplete loan package can lead to denial.
Once you apply for an FHA loan, one of the loan requirements is that the home appraisal is done at a higher standard as compared to the conventional appraisal.
A conventional loan is often better if you have good or excellent credit because your mortgage rate and PMI costs will go down. But an FHA loan can be perfect if your credit score is in the high-500s or low-600s. For lower-credit borrowers, FHA is often the cheaper option. These are only general guidelines, though.
To convert an FHA loan to a conventional home loan, you will need to refinance your current mortgage. The FHA must approve the refinance, even though you are moving to a non-FHA-insured lender.
Generally speaking, FHA loans might be a good fit if you have less money set aside to fund your down payment and/or you have a below-average credit score.
As a seller, you're usually not taking on additional risk by accepting an offer from a buyer pre-approved for an FHA loan than you would with a buyer pre-approved for a conventional loan. In fact, it's even possible for an FHA loan-backed offer to be the best offer in a multiple offer situation.
When you apply for this type of mortgage, the underwriter will make sure that your application meets both the lender's standards as well as the standards set forth by the FHA. FHA loans take an average of 55 days to close. For home purchases, the average is 54 days. For refinances, it's 59 days.
Another common question is: How long does the FHA home appraisal process take? In most cases, the appraisal can be completed within a matter of days. But this will depend on the appraiser's workload, efficiency, and other factors. The property visit itself usually only takes a few hours.
FHA loans tend to have higher closing costs than conventional loans, but because FHA loans allow the seller to pay for more of your closing costs than conventional loans, they may actually be cheaper.
Some of the more common issues that pop up from an FHA appraisal are peeling paint and unsafe access points to areas of a home. There cannot be any peeling paint on the exterior of your home. This will get flagged by the appraiser.
Appraisal is lower than the offer: If the home appraises for less than the agreed-upon sale price, the lender won't approve the loan. In this situation, buyers and sellers need to come to a mutually beneficial solution that will hold the deal together — more on that later.
To pass an FHA inspection, however, your foundation must be free of significant cracks as well as ongoing water damage or evidence thereof. If you have a crawl space under your home, it must have proper ventilation and be free and clear of trash and debris. FHA inspectors look up as well as down.