FHA loans are becoming increasingly popular these days as potential homeowners may not able to qualify for mortgages from traditional lenders.
The FHA insures some higher-risk loans, in turn allowing borrowers with low down payments and less than perfect credit to purchase homes and bolster the housing market. However, getting through the loan process with the FHA can be more difficult than with a traditional lender, and you may need to cope with some of these common loan hangups.
Property Condition
You can’t buy just any property with a FHA loan. The appraiser must deem it to be livable, without any conditions that could jeopardize health or safety. If the home has chipping paint, a leaky roof, or a wobbly banister, the financing could fall through.
Sometimes you can get the seller to make the needed repairs to pass inspection, but in other cases, you may have to go an alternate route. The FHA 203K streamline loan allows you to borrow up to $35,000 for home repairs to bring the house up to code.
Low Appraisal
In addition to inspecting the property, appraisers also estimate its market value. These estimates are based on the property’s features and a comparison to similar properties that have sold recently. If the appraisal is low, the FHA loan funding could fall through because the FHA will not let you borrow more than the home’s appraised value.
Rather than trying to scrape together a bigger down payment, you may want to take the information to the seller to renegotiate the purchase price. The seller will likely recognize that other buyers would be in the same boat, leading the seller to agree to a lower purchase price.
High Debt-to-Income Ratio
Your FHA loan may encounter a snag in the underwriting process if your total debt payments, including your new mortgage, would be a high percentage of your income. If you are in this situation, ask your lender to try running you through the automated underwriting program called TOTAL.
The process is quick, and often you can make up for a high debt-to-income ratio with other compensating factors, like a larger down payment or a cash reserve of several months of mortgage payments.
If you have any questions regarding FHA loans or any other home financing questions, please give us a call!
