February 3, 2011
When the buyer wants to buy a property for sale using an FHA home loan, they find the property they want and make an offer to the seller. The buyer will naturally discuss the potential sale with the seller, then make a written offer for the property.
The written offer is serious business–if the seller accepts, the written offer becomes a contract. It’s very important to make sure your contract contains some items that protect both your interests and the seller’s. It’s important to review your written offer before submitting to make sure you have all the protections you’re entitled to–one reason many buyers prefer to hire a lawyer to help them when the buying process gets serious.
When applying for an FHA mortgage and getting ready to purchase a home, make sure your contract contains the following:
–A legal description of the property that includes the dimensions of the home, the street address and other important physical data
–The selling price of the property and any required deposit
–Information on property insurance that covers the home until the deal is closed. You’ll need to discuss this with the seller, as buyer or seller may provide the insurance
–Disclosures, which include any applicable homeowner’s association agreements or other covenants
–The date you are able to move into the property
There are two very important sections in a contract the buyer should make sure are agreed upon and fully understood. One is the mortgage contingency, the other is the home inspection agreement.
The mortgage contingency is a clause in the contract stating that the sale of the property depends on being approved by a lender for your FHA home loan. This contingency should include specific rates, terms and other details, protecting you from being obligated to purchase the property if you’re turned down by the FHA for some reason after your loan application is filed.
Your loan could be disapproved or delayed for several reasons not connected to the borrower’s credit worthiness-the property may not meet FHA minimum requirements, be located too close to high voltage lines or drilling projects, or other reasons that could cause the FHA to reject a particular property.
The other clause a buyer should make sure is in the contract is the home inspection contingency. Don’t agree to purchase a home without having it inspected by a qualified professional. The home inspection clause sets an inspection date and provide an explanation of what will happen if the inspection identifies any problems.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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