mortgage

Fixing 3 common FHA loan snags

Problem: Condition of the property
Problem: Condition of the property

The FHA expects a new property to be livable from day one. As a result, the agency has a strict inspection requirement intended to catch any potential health or safety hazards.

Things you might consider minor -- a broken window, chipped paint or a broken fire alarm -- can create significant delays in the buying process, says Gustavo Ahumada, an FHA-certified appraiser with Lapis House Appraisals in New York.

A photo submitted to a bank by the FHA appraiser that appears to show a problem with the home's condition can trigger a repair and reappraisal delay lasting weeks, Ahumada says.

The flood of foreclosures and short sales now on the market has brought this issue into the spotlight, Geist says.

"When a property goes into foreclosure, the previous owner will sometimes take out cabinets, appliances, plumbing, fixtures -- things like that -- and that would not make it eligible for FHA loans," he says.

Solution: FHA's 203K Streamline program

Buyers of distressed properties hoping to use FHA financing are caught in something of a Catch-22: They can't buy the property until the problems are fixed, but they can't make the repairs until they've bought the property.

Sellers may be persuaded to make the minimal repairs to the property needed to win a clean bill of health from a HUD inspector. But if the repairs needed are major or the seller is unable or unwilling to work with you, Geist suggests using the FHA's 203K Streamline program. The 203K program allows homeowners to borrow up to $35,000 for nonstructural repairs to bring the home up to speed before moving in.

More fundamental problems -- such as a well contaminated by a too-close septic drain field -- may be harder to address. It's possible to request that your regional FHA office waive the safety requirement blocking the loan. But, Geist says, buying such a home may put a homeowner's health and safety at risk.

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