In 1934, the Federal Housing Administration was founded to create an unheard-of window of opportunity for Americans who had little money and dismal credit reports to procure a loan and become homeowners. They achieve this to this day by promising to pay the lender every penny of the loan agreement that is not met by the borrower. To help absorb the risk of loss, the administration places strict requirements on both the borrowers and the properties that are receiving government assistance. Here we will study the specific qualifications that FHA homes must meet.
Requirements for FHA Homes
The reason why this agency can promise payment on all of these loans is because, in the event of foreclosure, they take possession of the home in question. The property acts as collateral, and the resale of the property is their only way to get back the money they must pay to the lender. This makes the condition of the house extremely important. A government-approved appraiser will conduct an inspection to establish the home’s market value and its overall condition, paying special attention to any existing deficiencies. The agency must insure that it will hold its market value. Any flaws in the property’s design, construction or infrastructure are a particular concern and repair may be required before approval is given. The property must also meet health and safety standards to be eligible.
Durability is the key in this evaluation. The agency needs to know that the home’s condition will not begin to deteriorate for at least the duration of the loan term. They are looking for homes that are rock-solid to insure their financial obligation. Even items such as doors, windows, gutters, painting, wall coverings, kitchen cabinets and carpeting have to reach a minimum standard to make sure they will not hurt market value before the property can be sold.
During inspection, the plumbing and electrical systems undergo specific scrutiny. Appraisers are on the lookout for any signs of water damage, exposed wiring, faulty mechanical systems and termite damage. A specialist will be brought in to evaluate the extent of any existing damage, corrections will be made and a follow-up inspection conducted before approval can be given.
Not all property types can become FHA Homes. Detached and attached homes, individual condominium units, townhomes, manufactured homes and single-family homes can qualify if they stack up to the agency’s rules and regulations. An individual condo can only be federally insured if the entire development is approved. Manufactured homes are strictly held up to the HUD Code’s durability standards. Insurance applies to both new and existing construction, whether complete or in need of restoration.
Consider that federal loans are generally given to applicants who will live full-time in their new home. One borrower cannot insure multiple homes unless they must otherwise commute an unreasonable distance due to job relocation, or their spouse needs alternative housing for legal reasons. There are circumstances that allow investors to hold this type of loan, but requirements are strict.
How to Find Approved Housing
The above-listed guidelines may be used to help you in a self-evaluation of the property you would like to live in. Knowing the basics, you can conduct a process of elimination and get a basic idea of the kind of housing you are looking for.
On the HUD website you will find a list of FHA approved housing projects searchable by name, city, state, or zip code. Since the administration must sell the properties it assumes to continue to fund its operation, there is also a page listing foreclosed single family homes and multi-family complexes. This is an excellent place to start your house-hunting, as there are many different programs that allow these homes to be purchased at discounted prices.
You can also call your lender to confirm any relevant information you find on the website. Loan officers will oftentimes have a more up to date list of approved homes and condominiums to choose from. Once you know your options and what to look for, you can find a beautiful residence with the certainty of approval.
When one considers all the allowances that the Federal Housing Administration is willing to make in order to help you own a home, it is easy to see why everything must be reviewed and approved before they can guarantee your mortgage. After all, the likelihood of foreclosure increases tremendously when lending to applicants with poor credit history, minimal cash available for investment and even purchase prices that are greater than the property’s appraised value! FHA homes are their only certainty of reimbursement, and the only means of insurance for you!