February 14, 2024
There are some FHA loan issues that are crucial to understand before you commit to a lender or a mortgage.
For example, do you know what to do if the appraisal is lower than the asking price? Or how long you will pay for mortgage insurance?
These are important things to know when planning and saving for your mortgage.
FHA Loan Appraisal Issues
If the house is not worth as much as the price tag, your participating FHA lender cannot lend more than the actual value of the property.
This rule does not prevent add-ons to the loan, but the base loan amount is for the appraised value. If you want to buy a house that appraises lower than the asking price, you can’t finance the difference. You must pay it in cash.
For FHA mortgages, there is also a rule allowing the borrower to walk away from the loan without penalty. You can’t be compelled to buy a house that isn’t worth as much as the asking price.
FHA Loan Rules For Multi-Unit Properties
The FHA single-family home loan program offers loans for properties with as many as four living units. Borrowers can earn income from renting the unused units, but the borrower must live in at least one of those units as the main address or primary residence.
FHA Loan Rules For Building (FHA One-Time Close Mortgages)
Do you want to use an FHA mortgage to build a home? You can do so, but you cannot buy land with an FHA home loan if you have no plans to build.
The FHA does not allow you to buy undeveloped land with no plan to construct the home as part of the transaction.
FHA Mortgage Insurance Payments
FHA loans require mortgage insurance for 11 years or the complete term of the loan. This will depend on your loan-to-value ratio and related factors. Anticipate this expense when planning and saving for the mortgage, and avoid financing the upfront mortgage insurance premium if you can afford to do so.
FHA Loan Rules For Fixer-Upper Houses
If you find a home you want to buy as a fixer-upper, you need the FHA 203(k) rehabilitation mortgage, created to help you purchase a house that might not pass a standard FHA appraisal and must be brought back into compliance with state code and FHA minimum standards.
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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