Not all buyers are created equal. When selling your home, you must decide if FHA buyers are a good fit. The current housing market gives sellers more control over selling their home. With a shortage of affordable housing nationwide, sellers often receive multiple offers. This means homeowners can be pickier about which buyers to select.
Most often, there are no issues when selling to an FHA buyer. However, it is important to understand what an FHA loan is and three issues that may lead to problems with FHA buyers.
What is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration. FHA loans are popular with first time buyers. These loans offer homeowners with a lower credit score or less savings the opportunity to purchase a home.
For an FHA loan with a down payment of 3.5%, the buyer must have a FICA score of at least 580. Buyers with a FICA score under 580 must make a down payment of at least 10%. Other requirements include steady employment and a valid social security number. An FHA loan has many other requirements for the buyer and the home they are purchasing.
Three Risks to Know Before Selling to an FHA Buyer:
One of the biggest reasons an FHA mortgage has problems is the property condition. To receive an FHA loan the property being purchased must meet the HUD property standards for FHA loans. The standards are in place to ensure the home is safe, healthy and livable. The standards include basic things like no lead paint, no peeling paint, operating appliances and much more.
Unlike with traditional loans, a closing credit can’t be offered for repairs. All repairs must be made before the load is approved. The seller is responsible for making all the repairs in order to meet the standards for the FHA mortgage approval. If you’re selling an older home or a home in disrepair, an FHA buyer is likely not a good option for you.
Appraisal Lower than Selling Price
Especially in this seller’s market with home prices on the rise, the appraisal value of a home may be lower than the selling price. Mortgage lenders will only lend up to the appraised value of the home. For FHA buyers who are only paying a 3.5% down payment, finding the money to cover the difference may be difficult. With traditional, non-FHA buyers, the mortgage is allowed if the difference in value is covered.
Pre-Approval Doesn’t Guarantee the Loan
Just because a buyer is pre-approved for a mortgage doesn’t mean they’ll receive final approval. Steady employment is one requirement for an FHA loan. If the buyer loses their job or their financial situation changes, they may not be approved for the mortgage.
Also, consider it may be difficult to find the amount of money to cover the down payment even with the lower requirement. And, the credit score can change if the buyer makes poor financial decisions.
Home sellers need to understand the requirements and risks involved before selling to an FHA buyer. Most of the time, there are no issues when selling a home to an FHA buyer. Depending on your timeframe to sell and the condition of your home, you may decide whether an FHA buyer is a good option for your home.
If you have questions about selling your home, contact the real estate experts at The Rivera Group. We specialize in buying and selling homes in Kent County, Delaware. Contact us today at 302-346-2719 or email us at email@example.com!
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