People facing tough financial times often resort to loans offered by the FHA or Federal Housing Administration. These loans remain the silver lining for people experiencing bitter economic hardships. These loans are provided with several benefits, particularly the low down payments (lesser than 3.5%). These flexible criteria are offered to borrowers with some credit challenges and lower incomes. Apart from following the simple guidelines recommended by the FHA, the homes should suffice certain conditions for quick approval. In this article, we will focus more on the house which fails to meet the criteria of an FHA loan, have a look at under:
Understanding the Basics
First things first, we should understand the basics of the loan offered by the FHA. The Federal Housing Administration is governed by the Department of Housing and Urban Development (HUD). Thus, it is inevitable that this governing body sets up the rules for a home for any rejection or approval. The body FHA is responsible for ensuring home loans but is not directly involved in funding them. Here, the lenders (banks) play a vital role in getting the home rejected or approved.
The FHA needs its participating lenders to look at the appraisal inspection reports, which have to be accomplished by an FHA-recognised appraiser. The lenders, with their underwriting approval, work on behalf of the FHA, which a property suffices its set standards for insurance coverage. This insurance cover secures the lender when a loan borrower defaults at a later stage.
Any expensive home fails to qualify for an FHA loan for obvious reasons. The governing body (DHU) establishes loan limits annually, which differ by the number of units and location. The FHA has its limitations as far as the loan amount is concerned. Any expensive home with the usual FHA down payment of 3.5% will give you a loan amount exceeding the set limit. For instance, San Francisco County provides the highest possible loan limits as it is regarded as an expensive cost area. It has a limit of around $729,750 for one family home.
There, a home can cost you around $800,000 and is offered with a minimum down payment amount of $28,000 for borrowers who fail to qualify for FHA. The loan amount remains high at a whopping cost of $772,000. The borrower would need around $43,000 in order to qualify for a home for the loan.
For all the FHA foreclosed homes, the FHA can again make these homes eligible for the loan. The FHA-insured homes are the properties that have repairs not more than $5000. However, any non-insured homes of FHA have repair expenditures of more than $5000. You can sell it through HUD provided these do not become eligible for any new FHA loans.
The lenders take their final call about rejecting or approving the loans for any applicant. However, the assessment of a home’s condition by an appraiser remains an important activity that influences the decision of approving or rejecting any loan. The lenders demand that certain deficiencies be fixed before approving or rejecting the loans.
For instance, the lender may need a home that is required to be treated for the presence of termites or any other wood-damaging pests, mainly when the appraiser denotes termite damage, which hampers the structural integrity of the property.
The types of Properties
Your home loan will be rejected if it fails to meet the specific guidelines for the property type. For instance, FHA loans for condos can be considered under condos constructed in HUD-approved locations or complexes. You can easily find such FHA-eligible complexes over the HUD’s portal.
All these complexes can easily comply with the HUD standards for factors like financial stability, liability insurance and hazards. The constructed homes comply with certain specific norms. For example, you can find too many permanently fixed homes over its foundation and fall under the real estate tax areas. All these properties fall into this criteria if their construction date falls on or before 15th June 1976.
FHA loans are reasonable solutions for buying an extensive array of properties. It is often a logical option for people with low credit scores (below 680 or so). With features like lower interest rates and down payment requirements, FHA loans help make home-buying a viable option. Yet, it has certain criteria to meet. The above are some factors that reject the FHA loan; if you still have any questions, feel free to contact us.