FHA Interpretations Can Vary

February 25th, 2013

Interpretations can vary and different people will oftentimes see different things in the same picture. It is really interesting how one thing can be interpreted in so many different ways. A perfect example of this is how people interpret the FHA mortgage loan.

Most listing realtors will advise their sellers not to take an offer when the buyer is using FHA financing, at least as long as there are other conventional financing offers that are acceptable. There is a perception that FHA financing comes with some baggage that realtors want to have their seller avoid.

Below is how I see the reality of an FHA loan.

FHA loans fell out of favor during the real estate boom of 1998-2006. Sellers did not want to be exposed to the more marginally qualified buyers that were usually attached to an FHA loan. Nor did they want to hassle with the more stringent appraisal requirements of an FHA loan. Then the use of FHA started to rise and was more accepted when the real estate market got soft after 2006. This was certainly so in 2008-2010. Now, in some of the markets I work in, inventory is low. And it is a seller’s market again. FHA is now out of favor again. But I am not really sure why.

FHA can be a great loan option these days. No one from home buyers, to sellers, to realtors, should have a concern about using FHA mortgage financing. However, FHA loans have gotten expensive since the mortgage insurance cost has increased. And now you cannot drop the FHA mortgage insurance once you hit a 78% loan-to-value. More on that can be read by clicking here.

If you have no other choice but FHA financing, it is not so bad, and people should not shy away from it. There are a lot of misinterpretations and myths about FHA loans.

Top Five FHA Loan Myths

Myth 1. FHA appraisals always require repairs: FHA allowed private appraisers to do FHA appraisals many years ago, and this solved much of the old repair problems where FHA staff appraisers would require numerous serious repairs. Yes, today you will still find “scrape and paint” type of repairs, and some safety repairs, but overall it’s not severe. So if you have a house with some flaking paint around the window sills, a broken handrail and a missing step, pay a handyman a few hundreds bucks to fix it all, and accept an FHA offer!
Myth 2. FHA loans take longer to get approved: FHA loans take the same amount of time to get underwritten as Conventional loans.
Myth 3. FHA loans have very restrictive guidelines: The opposite is true. FHA is more liberal on credit scores, debt ratios, gift money, cash reserves, co-signers, and more.
Myth 4. FHA Loans Are Only for First Time Home Buyers: You do NOT have to be a 1st time homebuyer to get an FHA. But you can only have one FHA loan at a time and can only get an FHA loan on a primary residence.
Myth 5. FHA Loans Have Low Maximum Loan Amounts: You can get an FHA Loan all the way up to $729,750 in most of our surrounding Washington DC metro areas. Click here and here to see what the current loan limits are at the time of reading this article.

Of course, sellers need to weigh all offers carefully. Assume you have the same offer or possibly a stronger offer with conventional financing. Of course you will not take a similar or weaker offer with a buyer using FHA financing. As a seller, if you have no other offers, you should not shy way from an FHA buyer. But assume you have weak or lower offers where the buyers are using conventional financing. If you have an FHA buyer who has a stronger offer at a higher sales price, it is something to seriously consider.

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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