FHA Loans Limit Your Home Selection
by Rogelio Rodriguez, Vida Real Properties
FHA loans have made it possible for buyers to obtain the financing to become homeowners that otherwise would have not had a chance. With a relaxed credit guidelines, a 3.5% down payment requirement and even the possibility for down payment assistance, borrowers are able to get their foot in the door of the home buying process. In a buyers’ market, where there is plenty of inventory to chose from, it works out great for the buyer. HOWEVER, in a seller’s market, especially for home prices under $200k, there is limited inventory and having an FHA loan becomes somewhat of a handicap.
Here’s an example:
Let’s say a buyer with an FHA loan wants to buy a home in Jefferson County, Colorado. After the first week in September 2012 there were a total of 1,895 single family active units for sale. Of the single family units 1,232 will accept an FHA loan. That’s only 65%! In Denver county, it’s no different. 989 of the 1,505 active units for sale accept FHA financing. In contrast, 99% of the units allow for conventional loan financing in both counties. That means there is much less of a selection for buyers with an FHA loan…and that’s without considering the price of the home.
Condominiums are typically even more of a challenge since the entire complexes have to FHA approved. In Jefferson County, 77% of the 267 condos available for sale do accept FHA financing – not too bad. In Denver County, however, this a huge challenge for condos. Of the 857 units available, only 340 or 40% allow for FHA financing.
Appraisal requirements that tie to the physical properties and condition of the home is the major factor in determining whether the property is listed as allowing FHA financing or not. Foreclosed, now bank owned, homes also are notorious for not wanting to fix/repair any potential property condition requirements and will not place the homes for sale with FHA financing terms.
So what do you do? Don’t settle for the FHA loan approval if you are able to qualify for a conventional loan and are fine with the loan terms. You want to explore all financing options with your lender. FHA financing gets you a loan that otherwise you may not have. Just realize that you will only be able to look at a fraction of the homes available for sale.
Here are some good links:
Details of FHA Loans
FHA Approved Condominium Projects