Things to consider with FHA and VA

The FHA loan is often great for first-time buyers and others who can’t put 20% down on a transaction, but it has one great pitfall, which is the FHA inspection. FHA, and VA also, insist on a home being in sound repair in order to insure the financing.

Many homes offered for sale have some elements of deferred maintenance, and usually buyer and seller can negotiate in a relatively friendly way which of these each side will take on. Some repairs the seller will fix before closing, and some the buyer will agree to absorb, to be fixed down the road after move-in.

FHA, however, insists ona property being in functionally top shape by closing. VA is the same way. The reasoning for this is very straightforward. With conventional finance, a buyer makes a down payment of 20% of the agreed price. And with 20% of the property collateralized this way, a lender suffers no great risk with some deferred maintenance. But FHA and VA are responsible for the full amount of the appraised value, and therefore insist that the property be in re-saleable condition

In this 2013 housing market in South Florida, inventory is still scarce and there are more ready buyers than available sellers. And with the likelihood of multiple offers coming in on each good listing, many sellers will prefer to accept an equivalent offer with conventional financing before they’ll even consider an offer backed with FHA-insured financing. In this seller’s market an FHA loan is a competitive disadvantage.

Active termites discovered by inspection, termite damage, wood rot of any kind, up-to-date wiring, and the exterior of the house or fence needing paint are all repairs that FHA will insist on. The property must be fully insurable. A seller knows that a buyer who can’t put 20% down on a purchase probably also can’t afford to cover such repairs up front, simply in order to close. The FHA knows this also, and doesn’t want its newly insured homeowners to be married to money pits they can’t maintain.

Most homes below a certain price point do have deferred maintenance of some kind to be dealt with. And too, some maintenance doesn’t become apparent until a home inspector starts to examine carefully.

Some sellers aren’t in a position to bring their property up to FHA standards, and therefore entertaining an FHA-insured offer doesn’t make sense. There are also additional costs that FHA stipulates cannot be paid by the buyer side during the transaction, these costs will go to the seller.

For those who don’t have the 20% down, FHA is a fantastic option. It’s worth remembering that in today’s market with scarce inventory, options are limited, and FHA or VA buyers need to look for a seller agreeable to the extra costs and with a property in good repair.

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