FHA home loans are unique compared to conventional loans due to the lower down payment and more forgiving credit requirements. There are some basic rules governing FHA mortgage loans you should know about going into the process; keeping these in mind will save time and help you better prepare for the loan.
One of the key issues for FHA mortgages is the location of the home. According to HUD 4000.1, “The Property must be located within the U.S., Puerto Rico, Guam, the Virgin Islands, the Commonwealth of the Northern Mariana Islands, or American Samoa.”
That’s a very basic requirement, but FHA loan rules do get more specific from there. A property must be situated in a reasonable owner-friendly location. For example:
“The Mortgagee must determine if a Property is located in a Special Flood Hazard Area (SFHA) as designated by the Federal Emergency Management Agency (FEMA). The Mortgagee must obtain flood zone determination services, independent of any assessment made by the Appraiser to cover the Life of the Loan Flood Certification.”
What does this mean? FHA loan rules say that a home is NOT eligible for an FHA mortgage loan if:
“a residential building and related improvements to the Property are located
-within SFHA Zone A, a Special Flood Zone Area ,or Zone V, a Coastal Area, and insurance under the National Flood Insurance Program (NFIP) is not available in the community;
-the improvements are, or are proposed to be, located within a Coastal Barrier Resource System (CBRS).”
There are other restrictions:
“In accordance with the Coastal Barrier Resources Act, a Property is not eligible for FHA mortgage insurance if the improvements are or are proposed to be located within the Coastal Barrier Resources System.”
For certain types of housing, there are additional requirements. Manufactured homes, for example, have the following rules which apply:
“The finished grade level beneath the Manufactured Home must be at or above the 100-year return frequency flood elevation. If any portion of the dwelling, related Structures or equipment essential to the Property Value and subject to flood damage for both new and existing Manufactured Homes are located within an SFHA, the Property is not eligible for FHA mortgage insurance unless the Mortgagee obtains:
-a FEMA issued LOMA or LOMR that removes the Property from the SFHA; or
-a FEMA National Flood Insurance Program (NFIP) Elevation Certificate (FEMA Form 81-31) prepared by a licensed engineer or surveyor stating that the finished grade beneath the Manufactured Home is at or above the 100-year return frequency flood elevation, and insurance under the NFIP is obtained.”
Floods and coastal barrier issues aren’t the only ones. A home cannot be located within a high voltage transmission easement or a high-pressure gas pipeline easement. There are distance restrictions that can and often are supplemented by state or local ordinances or building codes. These codes may vary from place to place, so those with questions about issues like these will need to consult the local authority.