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FHA Loan Rules On Property Acceptability

December 13, 2016

136If you want to purchase a home with an FHA loan in 2017, the property you decide to buy must pass an FHA appraisal process designed to insure the property physically meets certain minimum standards. The foundation, the roof, the sewage and electrical systems must all meet FHA requirements, plus state/local building code, etc.

But the FHA loan rulebook, HUD 4000.1, also spells out some basic property acceptability criteria. For example, the rule book begins by stating that FHA loans are only for properties located within the continental U.S. or its territories. “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”.

HUD 4000.1 has restrictions on properties located in certain types of flood zones, coastal barrier areas, etc. Then there are the requirements on who can sell a property to the FHA borrower:

“To be eligible for a mortgage insured by FHA, a Property must be purchased from the owner of record. The transaction may not involve any sale or assignment of the sales contract.”

That’s an important factor in the sale of a home where an FHA loan is used. Did you know that the lender is required to obtain written proof that the seller is the owner of record? From HUD 4000.1:

“The Mortgagee must obtain documentation verifying that the seller is the owner of record. Such documentation may include, but is not limited to:

-a property sales history report;
-a copy of the recorded deed from the seller; or
-other documentation, such as a copy of a property tax bill, title commitment, or binder, demonstrating the sellers ownership of the Property and the date it was acquired”

The FHA loan rule book adds, “This requirement applies to all FHA purchase money Mortgages, regardless of the time between resales”.

There are other requirements. FHA loan rules have a set of anti-flipping measures, basically stating that a home that was purchased and placed back on the market 90-180 days after being acquired may not be eligible for an FHA mortgage unless it meets certain exceptions. One such restriction is applicable for properties that have been repossessed and resold under the the HUD REO program.

If you aren’t sure how these rules affect your specific transaction, discuss your concerns with a loan officer.

Joe Wallace - Staff Writer

By Joe Wallace

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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