Fixing the 3 common Problems with FHA Loans2-22-2011 In today’s housing market, loans approved by the Federal Housing Administration (FHA) have become a viable option for many potential homeowners. An FHA Loan essentially secures the borrower’s loan by insuring it through the U.S. Department of Housing and Development (HUD), thus affording both the borrower and lender peace of mind. In effect, FHA promises to pay the difference between what a home gets at a post-foreclosure auction and what is still owed on the home should a borrower default. However, borrowers may be disappointed to discover that the FHA may soon begin imposing stricter loan standards, making the possibility of an FHA insured loan difficult. The condition of the property, appraisal value, and borrower’s debt-to-income ratio are all potential roadblocks to attaining an FHA insured loan. The FHA also requires that a home be inhabitable upon sale, therefore the agency’s home inspection standards are much more rigorous than what one might expect. FHA-certified appraiser Gustavo Ahumada states that minor inconveniences, such as a broken window or chipped paint, may significantly slow down the home-buying process. Ahumada went on to state that a photo submitted to a bank by the FHA appraiser appearing to show a problem with the home's condition can trigger a repair and reappraisal delay lasting weeks. A possible solution to this problem is for the borrower to pay for the repairs to the property in order to pass HUD inspection, or if the costs become insurmountable, apply for the FHA’s 203K streamline program. The program allows for a loan up to $35,000 dollars for the repair of nonstructural damage to the property, enabling the borrower to bring the property to code upon moving in. Inaccurate appraisal values may also bring FHA insured mortgages to a halt. Properties which were appraised at unrealistically high prices during the real estate boom, now being appraised far below their actual value by wary appraisers, lead to a real estate economy where accurate values are nearly non-existent. Because of the false economy created, the chances that an FHA appraisal will come in below the negotiated price increases, possibly thwarting FHA mortgage plans. While one may provide a larger down payment in order to make up the difference between the negotiated price and appraisal value, Ahumada states that a better option is to use the appraisal to renegotiate the purchase price, hoping for a motivated seller to accept a lower offer. The FHA has also placed restrictions upon the debt-to-income ratio one has before insuring their loan. Often times, borrowers who spend more than 31 percent of their monthly income on a mortgage payment (or 43 percent on all debts combined) will have difficulty attaining an FHA insured loan.
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