November 15, 2017
Do the same FHA loan requirements apply to all borrowers? We have been examining that question in recent posts. FHA home loan rules were written to accommodate a variety of circumstances. There’s no true “one size fits all” home loan, so there are different regulations for different situations.
The basic standards apply to all, but there are situational factors where some rules apply to certain borrowers that won’t apply to others. But what does this mean?
FHA FICO Score Requirements
Borrowers with qualifying FICO scores are eligible for maximum financing, which would include a minimum 3.5% down payment based on the adjusted value of the property. But the rules change for those who do not have FICO scores that meet the minimum requirement.
Those with FICO scores below 580 will have to make a larger down payment-ten percent-in order to qualify for the loan. This is an example of how FHA loan rules differ for people depending on circumstances. But note that these different requirements are based on a fixed standard-the FICO score must be in a specifically defined range according to FHA loan rules.
Lender standards will also apply, which means that a borrower with a FICO score considered “too low” for maximum financing with one lender might find that a competing lender’s requirements are more forgiving.
The key in this case is understanding that the baseline requirements are fixed by the FHA and the lender. These are not “shifting” rules applicable when it’s convenient for loan approval or to turn down the application.
FHA Minimum Property Standards
Some minimum property requirements are not applicable to all homes under consideration for purchase with an FHA mortgage. For example, a condo loan’s requirements are different than a suburban home partly due to the nature of the property. A suburban home is purchased by the borrower with the idea that the home owner is solely responsible for the upkeep and maintenance of the property.
But a condo unit purchase requires the borrower to enter into a communal agreement with other condo unit owners in the same building. There are added concerns in such case including whether the condo owners’ association documents somehow prevent the owners from freely selling or disposing of the property.
A borrower’s FHA loan in such cases is dependent on not being tied to legally binding agreements that prevent the owner from selling the unit at will. The FHA loan rules for condo purchases say the loan cannot be approved unless the owner is free to sell at any time.
A suburban home purchase would not be subject to the same potential issues. You can’t restrict the owner of a typical house in the suburbs with an FHA mortgage from selling, either…but in general it’s not the same kind of issue as with an FHA condo loan. So we can see that not all FHA loan rules apply to all transactions, and not all borrowers are affected by some of the rules that exist to handle these concerns.
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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