Tuesday, August 23, 2011 - Article by: Joe Afonso - Primary Residential Mortgage, Inc. NMLS # 3094 -
Have you asked yourself what to look for in a property when using FHA financing?
In today's real estate market, you need to know what to look for in a property when using FHA financing. Most home buyers are faced with a lack of available cash needed to do the necessary repairs that might be needed. Why not know the home you are purchasing is up to HUD/FHA standards?
First let us discuss what are the benefits of an FHA mortgage. Low down payments: FHA loans require a very small down payment. Home buyers can make a down payment of as little as 3.5 percent of the home's value with an FHA loan. This down payment can come from the home buyer own funds, a gift from a family member or a grant.
Less stringent credit qualifying: Although The FHA does not have a minimum credit score requirement in order to qualify for the loan must lenders require that the borrowers have a 620 minimum fico score. The guidelines are not as strict regarding past bankruptcies and foreclosures.
Higher Debt-to-Income Ratios: Underwriting guidelines allow for 29% of the home buyer income to be spent on housing expenses (Principle, Interest, Taxes and Insurances) and 41% for housing and monthly reoccurring debt. Higher ratios can be used when using and automated approval.
Mortgage Insurance: FHA loans generally require an UFMIP (upfront mortgage insurance premium) equal to 1% of the base loan amount which can be financed, and are also subject to an annual renewal fee depending on the loan to value.
These are the things to look for in a property when using FHA financing?
So let's talk about the property now.
What you need to know is that FHA repairs are usually limited to the following three categories:
SAFETY: Protect the health and safety of the occupants
SECURITY: Protect the security of the property (security for the FHA insured mortgage.)
SOUNDNESS: Correct physical deficiencies or conditions affecting structural integrity Below is a sample of the suggested minimum property requirements under the FHA program. This is meant to be utilized as a guide ONLY and is not a guarantee of necessary requirements. (HUD Handbook 4905.1).
1. May be either circuit breakers or fuses.
2. Appraisers should examine the electrical box to ensure that there are no frayed or exposed wires.
3. Existing 60-amp service is acceptable if it appears that this is adequate amperage for the appliances present in the property, or those considered "standard" if the present appliances appear to be less than found in the "standard" home.
4. Knob and tube wiring is acceptable if found to be in good condition and a minimum of 60-amps. Mechanical Certifications Electrical, plumbing and/or heating certifications may be called for by the appraiser when he/she cannot determine if one or all of these systems are working properly. An appraiser should not arbitrarily call for such certifications as they are still responsible for checking on the adequacy of these systems at the time of appraisal.The certification must be done by a home inspector, an inspector from the local building department, an FHA compliance inspector, a professional in the specific field (e.g. electrician, plumber) or any individual deemed to be qualified by the Direct Endorsement underwriter. (Also see " Utilities Not On")
1. General: All habitable rooms must have a heat source. This does not mean that each room must contain a heating device but that each room must receive sufficient heat. There are exceptions were it is "typical" for the market area and does not adversely affect the marketability of the property.
2. Wood Stoves and Solar Systems: Dwellings with wood burning stoves or solar systems as a primary heat source must have permanently installed conventional heating systems that can maintain at least 50 degrees Fahrenheit in all living areas and those containing plumbing systems. These systems must be installed in accordance with the manufacturer's recommendations.
3. Floor Heaters: Due to the inherit dangers of a floor heater it is highly recommended that floor heaters in need of repair be replaced with another permanent heat source.
4. Non-Conventional Heating Systems: All non-conventional heating systems, such as space heaters and others, must comply with local jurisdictional guidelines. Often these are not acceptable as the primary source of heat.
5. Propane tanks must be a safe distance from the dwelling. Leased tanks are acceptable when not offered for sale. Propane fired furnaces located in a crawl space area is not acceptable.
1. All water heaters must have a non-adjustable temperature and pressure-relief valve.
2. The water heater must comply with local building codes regardless of its location.
3. Rental water heaters are not acceptable.
Basements: Basements: Basements must be examined for dampness or wetness, any obvious structural problems and the condition of the furnace, hot water heater or other components located there.
1. Sump Pumps in Crawl Space and Basement Areas: Sump pumps are acceptable to HUD provided that they are properly functioning at the time of appraisal. A sump pump may be hard-wired by an acceptable wiring method or may have a factory electrical cord which is to be connected to a receptacle suitable for such use. The receptacle must be located to allow connection to the factory wiring without the use of an extension cord. Note: A sump pump is not a cure-all. If there is significant incurable ponding of water in basements or crawl spaces, the underwriter may elect to reject the property.
Crawl Spaces: General Requirements HUD Handbooks 4905.1 REV-1, 2-14 & 2-11 and 4150.2, Section 3-6A11 - In order to ensure against conditions which could cause deterioration to the building and seriously affect the marketability of the property, it is required that:
1: There must be adequate access to the crawl space.
2: The appraiser will enter the crawl space at a minimum entry of the head and shoulders to observe conditions, except when access is obstructed, when entry could damage the property, or when dangerous and adverse situations are suspected.
3: It is highly recommended that the minimum height of a crawl space be 18 inches from the bottom of the joists.
4: The crawl space must be clear of all debris.
5: The crawl space must not be excessively damp and must not have any water ponding. 6: The crawl space must be adequately ventilated, providing positive airflow with no dead air space. A vapor barrier is not typically required; however, if moisture problems are evident, a vapor barrier should be required.
Roof: The appraiser must exercise sound judgment when evaluating roof condition. The roof should have a remaining physical life of at least two years. If the roof has less than two years remaining life, then the appraiser must report this condition in the appraisal report.
FHA will accept a maximum of 3 layers of existing roofing. If more than 2 layers exist and repair is necessary, then all old roofing must be removed as part of the re-roofing.
These are some of the thinks to look for in a property when FHA financing will be used?
To learn more, please feel free to contact your AZ FHA Lender.
Didn't find the answer you wanted? Ask one of your own.