FHA Underwriting Worries Some Sellers
One reason a seller might refuse your FHA-backed offer is that they believe the home sale may be more likely to fall through due to the FHA loan program's more lenient underwriting requirements.
Low Credit Score.
Today, borrowers seeking an FHA loan need a minimum score of at least 600 if they plan to finance the maximum amount of 96.5% Lower scores can cause an FHA application to get turned down.
Some condos aren't able to accept FHA loans because they don't meet the eligibility requirements necessary to receive FHA approval. Others may choose not to participate in the lengthy approval and recertification process.
Despite the lenient FHA loan requirements, it is possible to be denied. The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments or closing costs.
You may be denied for an FHA loan if you have declared bankruptcy but you have not had the bankruptcy discharged. You may be denied if you are delinquent on federal taxes or otherwise owe money to the federal government but without an approved payment plan.
Why? They feel that buyers who can secure any other financing option are 'stronger buyers. ' FHA buyers have a reputation for having low credit scores, little money to put down, and less than optimal qualifying requirements. Sellers want a 'sure thing' when they sell their home.
Why does HOA not want FHA loans? Some HOAs are hesitant about FHA loans due to certain requirements and restrictions. These are typically in place to maintain the value and appearance of the community, but they can make it difficult for buyers using FHA loans to purchase a home in that community.
Must have an undamaged exterior, foundation and roof. Must have safe and reasonable property access. Must not contain loose wiring and exposed electrical systems. Must have all relevant utilities, including gas, electricity, water and sewage functioning properly.
The average time to get a condo FHA approved is 2-4 weeks.
The speed of FHA Approval depends on: How quickly we receive the Condo Documents from the Management Company. How eligible the community is, and what is needed to make them eligible. The caseload at FHA at any given time.
With FHA loans, you also have to pay an upfront mortgage insurance fee. This can be financed, but it will cause your mortgage insurance payments to be more expensive than with a conventional mortgage. Inspection standards: To qualify as an FHA-eligible property, a home must go through a property standards inspection.
Since your home must meet FHA property minimums, the appraisal process may include more requirements than a conventional home loan. The appraisal is required to be performed by an FHA approved appraiser and may have additional inspections which could result in a higher appraisal cost.
FHA is for those who have not great credit or low down payment. An FHA has strings attached for a seller. Any investor special home may not pass FHA requirements or require the seller to make repairs prior to purchase. The process can be longer because of this.
The first step in negotiating with sellers over FHA-required repairs is to understand your options as a buyer. You have three main choices: you can ask the seller to make the repairs, you can pay for the repairs yourself, or you can walk away from the deal.
While FHA loans might have more lenient requirements than some other loan types, having a better credit score and DTI will likely net you a better rate. FHA loans are notable for requiring low down payments, but if you're able to make one that's higher than the minimum, you'll look like a safer candidate to lenders.
FHA loans do not have a home inspection requirement.
In fact, home buyers who use this program typically receive a HUD disclosure that stresses the importance of having the home inspected. But a full inspection is generally not required for California FHA loans.
Health and safety concerns: Properties with potential health and safety hazards, such as lead-based paint, asbestos, or mold, may not qualify for an FHA loan. The FHA prioritizes the well-being of borrowers and aims to ensure that the homes they finance are safe and healthy environments for residents.
If monthly financial obligations take up more than half your income, your lender will have a harder time justifying loan approval. If you have not met your financial commitment for child support as part of a court-ordered agreement, you may not qualify for an FHA mortgage.
The overall structure of the property must be in good enough condition to keep its occupants safe. This means severe structural damage, leakage, dampness, decay or termite damage can cause the property to fail inspection. In such a case, repairs must be made in order for the FHA loan to move forward.
FHA Loan: Cons
Here are some FHA home loan disadvantages: An extra cost – an upfront mortgage insurance premium (MIP) of 2.25% of the loan's value. The MIP must either be paid in cash when you get the loan or rolled into the life of the loan. Home price qualifying maximums are set by FHA.
Common reasons for FHA loan denial include low credit scores, high debt-to-income ratios, insufficient income, insufficient funds for a down payment, and properties not meeting FHA guidelines.
An FHA appraisal may fail due to safety issues, structural defects, or health hazards like mold or lead paint. Additionally, discrepancies in property value compared to loan amount or location-related issues can also cause an FHA appraisal to fail.
NAHB analysis of the most recent Quarterly Sales by Price and Financing published by the U.S. Census Bureau reveals that the four-quarter moving average (MA) share of new home sales financed through FHA was 11.0% in Q2 2022–its smallest share since early 2008.
Homeowners with FHA loans can refinance to either a new FHA loan or a conventional loan, as long as they meet eligibility requirements. The steps to refinance will depend on the lender and the loan you choose.