The Federal Housing Administration (FHA) is a government-backed agency providing mortgage assistance to homebuyers using loan requirements that are lower than those required by independent mortgage outlets.
The FHA requires that lenders and properties be approved by the agency in order to do business under their guidelines. Buyers of condominiums, especially, are restricted as to the communities they are allowed to purchase in because of strict regulations set by the FHA on the community’s financial stability. Knowing that the property is FHA approved is critical in obtaining financing.
Neither the FHA nor its parent, HUD (US Dept. of Housing and Urban Development), lend money for mortgages. They back loans, giving lenders assurance that if the borrower defaults the government agency steps in to help the lender recoup a large part of the loan. Since the government backs the loans, they stipulate that lenders be approved according to their standards.
Restrictions on FHA Approval
You can purchase a single family home, a multi-family building of up to four units or a condominium using FHA lenders. If the property you want to buy needs extensive repairs, the FHA will include the cost of repairs and back a loan for up to 110 percent of the value of the property after repairs are added to the value. This loan is referred to as a 203k rehab loan. The FHA sets building standards that must be met in order to qualify for an FHA loan.
Gaining FHA Approval
An FHA approved lender sends an appraiser to a property to evaluate its market price and worthiness. He considers all properties sold within the market for the past months and establishes a fair-market price for the property. If the selling price is above the appraised value, the buyer must either come up with the difference in cash, negotiate with the seller, or forfeit the loan. If repairs are necessary, they must be completed by the seller in order to close the loan. One cannot get money for repairs through escrow. All repairs must be completed prior to closing the loan.
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