Latest news with #FHA-approved
Yahoo
19-05-2025
- Business
- Yahoo
How to prepare for FHA appraisal requirements
An FHA appraisal assesses your home's market value and condition to determine whether it's both safe to inhabit and a good investment. You'll need to pass the FHA appraisal to receive an FHA loan for the property. Common problems raised by an FHA appraisal include peeling paint, damage to major systems such as HVAC or plumbing and drainage issues. When you buy a home with a loan from the Federal Housing Administration (FHA), the property must undergo an FHA appraisal. In addition to assessing how much the home is worth, like an appraisal for a conventional loan, an FHA appraisal determines whether it meets agency standards for safety and security. An FHA appraisal is a home appraisal in which a certified professional evaluates a home that will be purchased with an FHA loan. The process is designed to determine: The home's market value. Like a lender for a conventional loan, the lender for an FHA loan and the FHA itself want to ensure that they're not lending or guaranteeing more than the home is worth. That the home meets 'minimum property requirements.' This portion of the appraisal is similar to an inspection for a conventional loan. Essentially, an FHA appraiser will assess whether the home meets standards set by the U.S. Department of Housing and Urban Development (HUD) for safety, soundness and security. If the home is new construction, it must meet 'minimum property standards.' Appraisal vs. home inspection An appraisal suggests what a home might be worth based on recently-sold, comparable properties. Inspections help buyers understand whether a home has any major damage or other conditions that might make it unsuitable for purchase. Conventional lenders require an appraisal and highly recommend, but don't require, an inspection. While the required appraisal for an FHA loan also covers some aspects of an inspection, you may also want to get a separate inspection. The FHA appraisal process typically looks like this: Appraiser visits: An FHA-approved, licensed appraiser takes photos of and notes about property's condition, including its interior, exterior and surroundings. Appraiser writes a report: The appraiser compiles their findings into a report, which outlines the features of the property — including any defects — and provides an opinion on its market value. Appraiser makes recommendations: If the appraiser believes the property doesn't meet HUD standards, he or she will indicate the repairs necessary and their approximate cost. If an FHA appraiser can't determine whether a property meets HUD's standards, the mortgage lender may order an additional appraisal. In general, you can expect an FHA appraisal to be completed within a week. During an FHA appraisal, the appraiser will examine both the local market and the property itself. If you intend to use an FHA loan, knowing a little bit about the process can help you know what to look for as you tour properties. To assess the value of a home, an appraiser will research the local residential real estate market and the sale price of comparable properties that have changed hands recently. Appraisers must cite some specific pieces of market research, including: Two comparable homes sales completed within 90 days Three recently closed sales in the same subdivision Two active listings or pending sales The appraiser will also look at the property itself when making an appraisal. HUD's Single Family Housing Policy Handbook details a long list of conditions that will be reviewed as part of the appraisal process. When it comes to the property itself, the appraiser will ensure it meets HUD's standards by reviewing the following: Physical features: Including the foundation, roof, siding, chimneys and drywall. An inspector must also ensure there's no unremediated lead paint. Utility and systems: Such as water, electrical, plumbing and HVAC. Inspectors also review lighting, sewage, appliances and outdoor features, like swimming pools. Environment: Any potential hazards or nuisances around the home, from nearby power lines to an adjacent freeway or airport, or evidence of pests, such as termites. The inspector will also evaluate soil and yard grading. All homes being considered for FHA financing, whether single or multi-family, must meet minimum property requirements or standards. These rules, which ensure buyers purchase a habitable home, cover items such as: Major systems and appliances: The home's heating, electrical and plumbing systems must all be functioning. Roof: The roof must be functional for at least another two years. Access: The property must be accessible by a safe road. The road can be either public or private. Utilities: Gas, electricity, potable water and sewage utilities must all be accessible. Foundation: The foundation must be undamaged, properly graded and have adequate drainage to prevent leaks. Once the FHA appraisal is complete, the mortgage lender will review the report. Possible outcomes include: No issues. In this case, you can move forward with the purchase. Low appraisal. The appraiser believes that the home is worth less than the agreed-upon purchase price, creating what's known as an appraisal gap. The lender won't provide more financing than the home is worth, so if you'd like to move forward with the purchase, you'll have to pay the difference. You may also try to negotiate a lower purchase price or back out of the deal, but in this case, you could lose your deposit if your contract didn't include an appraisal contingency. Repairs required. If the appraiser finds that the home needs significant repairs, you'll have to negotiate with the seller to have them done before going forward with the loan. Your purchase and sale agreement (PSA) will stipulate who pays, but often, the seller is responsible. The lender may accept evidence that the repairs have been completed or require a second appraisal. Major hazards. If the appraiser uncovers a major issue with the home, it may not be eligible for an FHA loan. If there are issues, 'the appraisal will outline exactly what needs to be repaired for the appraisal to be FHA-compliant,' says Ralph DiBugnara, president of Home Qualified, a real estate industry platform. Typically, the repairs must be complete before closing day, though you may still be able to close if you're delaying an outdoor fix until the weather warms up, for example. In this case, a portion of the purchase price may be held in escrow until repairs are finished. If you'd like a longer timeline to make fixes, consider an FHA 203(k) loan, which finances a home purchase and repairs in a single mortgage. Structural alterations, reconstruction, modernization and elimination of health and safety hazards can all be addressed with a 203K loan. Some of the most common repairs required by the FHA include: Peeling paint: Any areas of the home with peeling paint — including the interior, exterior and any additional structures, such as a shed or fencing — must be scraped and repainted. Broken windows: Broken windows and doors must be replaced prior to move-in. Drainage: If necessary, drainage must be reconfigured to direct water away from the house. Infestation: Any mice, insects or other pests impacting the home must be exterminated. Major systems: If any of the home's major systems — such as heating, plumbing or electricity — are damaged, they must be repaired before closing. How much does an FHA appraisal cost? A home appraisal for a single-family home costs between $300 to $600, according to Neighbors Bank. The price depends on the level of demand in your area, how far the appraiser has to travel and the size of the house and lot. The buyer typically pays for the appraisal, and it may be folded into other closing costs. How long is an FHA appraisal valid? An FHA appraisal can be good for as long as six months, especially in a market where home values are fairly stable. In a hotter market, an appraisal might only be valid for a few months. Most mortgages close within 30 or 45 days, well before the appraisal expires. When do I need an FHA appraisal? You need to get an FHA appraisal when using many types of FHA loans, including: FHA purchase FHA 203(k) FHA cash-out refinance FHA Reverse Mortgage (HECM) You can skip the FHA appraisal if you're getting an FHA streamline refinance loan. What defects are overlooked by an FHA appraisal? An FHA home appraisal won't catch every defect, and the report isn't intended to note the results of typical wear and tear, such as a worn or stained carpet. If the problem is mostly aesthetic, and doesn't make the home unsafe, it won't likely show up in an FHA appraisal.
Yahoo
01-05-2025
- Business
- Yahoo
FHA vs. conventional loans: What's the difference?
FHA loans and conventional loans are both issued by private lenders, but FHA loans are insured by the federal government, and conventional loans are not. Due to their federal backing, FHA loans have more lenient criteria, so they're better suited for borrowers with lower credit scores. Conventional loans require a higher credit score and stronger financials, but also come with lower costs, less stringent home appraisals and cancellable mortgage insurance. If you're getting ready to buy a house, you have a lot of decisions to make. The same way that you can explore types of properties, you can — and should — explore different types of mortgages. The two most popular kinds of mortgages are conventional loans and FHA loans. While they have many similarities, they also have different qualifications that make them better fits for different types of borrowers. Here's how to choose between the two loan types. Both FHA loans and conventional loans are home mortgages originated by private lenders. Both can come with either a fixed or adjustable interest rate and have a loan term of a set number of years, typically 15 or 30. Conventional loans are what most people think of when they envision a mortgage. They're available through the majority of lenders in the U.S. — including banks, credit unions, savings and loan institutions and online mortgage companies — and are not backed or guaranteed in any way by the government. The lender bears all the risk of the debt. In contrast, FHA loans are insured by the Federal Housing Administration (FHA), a division of the U.S. Department of Housing and Urban Development (HUD). This means the government will compensate the lender in case the borrower defaults on payments. FHA loans are geared toward homebuyers who might have difficulty obtaining a conventional loan and tend to have more flexible requirements than conventional loans. FHA loans Conventional conforming loans Credit score minimum 580 (with 3.5% down) or 500 (with 10% down) 620 Maximum debt-to-income (DTI) ratio Usually 43%, but can go to 50% or more with compensating factors like a large savings account balance Usually 45%, but can go up to 50% in some cases Down payment minimum 3.5% (with a 580 credit score) or 10% (with a 500 credit score) 3% for fixed-rate loans or 5% for adjustable-rate loans Loan limits $524,225 in most areas $806,500 in most areas Mortgage insurance Mortgage insurance premiums (MIPs) required on all loans Private mortgage insurance (PMI) required on loans with less than 20% down; removable Appraisals Required by the FHA according to specific HUD guidelines and performed by an FHA-approved professional Required by the lender to evaluate the property's value against the sales price and performed by a state-licensed professional Interest rates FHA loan rates Conventional loan rates FHA loan: As low as 500 Conventional loan: At least 620 One big difference between FHA and conventional loans is the credit score requirement. FHA loan borrowers can qualify with a credit score as low as 500 or 580, depending on their down payment amount. With a score of at least 500, you'll need to put 10 percent down, or if your score is at least 580, you can put down as little as 3.5 percent. Conforming conventional loans require a credit score of at least 620, but many lenders will want to see a higher score. If you have excellent or good credit, a conventional loan is often the better choice. FHA loan: 43 percent, but can go up to 50 percent Conventional loan: 45 percent in most cases Your debt-to-income ratio is the measure of all your debt — the mortgage included — relative to your monthly income. For a conforming conventional loan, the maximum DTI ratio is 45 percent in most cases. For an FHA loan, the maximum DTI ratio is usually 43 percent, but it can go up to 50 percent. FHA loans: 3.5 percent with a credit score of 580 or better; 10 percent with credit score between 500 and 579 Conventional loan: As low as 3 percent for some loan types Depending on the lender and program, some conventional loans require a down payment of as little as 3 percent. With an FHA loans, if your credit score is at least 580, you can put down just 3.5 percent. If your score is below 580, but not lower than 500, you'll be required to put down 10 percent. FHA loans: $524,225 in most areas Conventional loans: $806,500 in most areas Depending on your location, choosing between an FHA and a conventional loan might come down to the price of the house you want to buy. Keep in mind that both types of loans have limits on the amount you can borrow. The conventional conforming loan limit, set by the Federal Housing Finance Agency each year, starts at $806,500 in 2025 and goes up to $1,209,750 in more costly housing markets. A conventional loan can exceed these limits, but at that point, it'd be considered a nonconforming jumbo loan. The FHA loan limit is also adjusted each year, and there are different limits based on location and property type. In 2025, the FHA loan limit for a single-family home is $524,225 in most markets and goes up to $1,209,750 in higher-cost areas. FHA loans: Both upfront and annual MIP required on all loans Conventional loans: PMI required for borrowers who put down less than 20 percent If you don't have 20 percent of the home's purchase price for a down payment, you'll be required to pay for mortgage insurance whether you're getting a conventional or FHA loan. And either way, your premium will typically be a part of your monthly mortgage payment. FHA mortgage insurance premiums (MIPs) also include an upfront premium equal to 1.75 percent of the loan amount. Then, you'll pay portions of an annual premium with each monthly payment. This premium is determined by the size of your down payment, how much you borrowed and the length of the loan: 15 years versus 30 years. If you make a down payment of at least 10 percent, your MIP will be removed after 11 years, but if you make a lower down payment, you'll pay it for the life of the loan. Conventional loan borrowers don't have to pay mortgage insurance forever: It can be canceled once the borrower achieves 20 percent equity in the home. You can get to this threshold by following your repayment schedule to pay down the loan balance, making extra payments or getting a new appraisal if your home's value has risen substantially. FHA loan: Required by the FHA and performed by an FHA-approved professional to insure the home meets HUD guidelines Conventional loan: Required by a lender and performed by a third party to determine the home's value When financing your home through a conventional mortgage, your lender will require a home appraisal. Lenders want to ensure the home is worth the amount of money they're extending to you. Meanwhile, FHA lenders require a more thorough appraisal process, which is designed to make sure the property complies with HUD standards. This can take longer than a conventional appraisal, and it may encourage sellers to select other offers if you're in a competitive market. FHA loans: May have lower interest rates, but higher fees Conventional: May have higher interest rates, but lower fees With both types of loans, the lender sets the interest rate, determined primarily by your credit score. That said, there can be some differences between FHA and conventional rates. You'll want to get quotes from lenders before you make a decision. FHA loans sometimes have more favorable interest rates than conventional loans, but the difference is often offset by fees, including the MIP charges. When comparing FHA vs. conventional rates, make sure you check each loan's annual percentage rate (APR) — which includes both the cost of the interest rate and all the fees — as the FHA loan's might actually be higher than that of a comparable conventional loan. When comparing FHA vs. conventional loans, the best fit largely depends on you and your financial profile. If your credit score is below 620, a loan backed by the FHA might be your only option. It might also be a better deal if you can't manage a 20 percent down payment, which is harder and harder with today's high home prices. 'The biggest difference between FHA and conventional would be the down payment. FHA rates typically are lower and more flexible for less down,' says Phil Crescenzo Jr., vice president, southeast division, for Nation One Mortgage Corporation. For buyers who have the ability to make a 20 percent down payment, there's far less benefit in seeking an FHA mortgage, unless they're not able to qualify for a conventional mortgage because of either credit score issues or a previous bankruptcy. 'In those cases, an FHA loan would be an option, but only if it was due to approval [problems],' Crescenzo says. Of course, the lower down payment comes at a cost. 'Most FHA loans carry mortgage insurance for the duration, which is a drawback to some,' Crescenzo says. However, the premiums may be lower than those you'd incur on a conventional mortgage with less than 20 percent down, 'as this cost is capped with an FHA loan,' Crescenzo adds. An FHA loan is a good choice if you: Have a credit score below 620 Have a smaller down payment Go for a conventional loan if you: Have a credit score above 620 Have a larger down payment Have monthly debts well under half of your income Want a house that exceeds the FHA loan limits in your area Do sellers prefer conventional loans over FHA loans? Sellers may prefer working with a buyer who has a conventional loan over an FHA loan because of the time it takes to conduct an FHA appraisal. Which is more costly, an FHA loan or a conventional loan? FHA loan interest rates run slightly lower than their conventional counterparts: in January 2025, for example, the national average for a 30-year FHA mortgage was 7.12 percent, while the 30-year conventional mortgage average sat at 7.16 percent. However, because they carry mandatory mortgage insurance, the FHA loan's APR often runs higher. And though the insurance premiums are lower on FHA loans, you'll pay them for the loan's lifetime. Are FHA loans only for first-time home buyers? No, FHA loans are not limited to just first-time homebuyers. Both first-time and repeat homebuyers are able to use FHA loan programs to purchase a home. FHA loans can also be used by repeat homebuyers to refinance a loan. Sign in to access your portfolio
Yahoo
06-03-2025
- Business
- Yahoo
HUD extends foreclosure moratorium for L.A. County wildfire victims
The U.S. Department of Housing and Urban Development on Thursday announced a 90-day extension for its foreclosure moratorium for many single-family-home mortgages impacted by the Los Angeles County wildfires. Originally scheduled to expire on April 8 2025, the moratorium prohibits mortgage servicers from initiating or completing foreclosure actions on FHA-insured single-family forward or Home Equity Conversion mortgages in the Los Angeles County Presidential Major Disaster Declaration (PDMDA) area. The moratorium will now expire on July 7, 2025. Newsom extends housing access, rebuilding efforts for wildfire victims HUD also shared these tips for wildfire victims. Borrowers unable to make their mortgage payments should contact their mortgage servicer for assistance as soon as practical. Borrowers may also contact the FHA Resource Center at (800) CALL-FHA (1-800-877-8339 or TTY 1-800-877-8339) for assistance. Borrowers and renters who need immediate housing and disaster recovery assistance; HUD-certified housing counselors are prepared to provide guidance on the available options. To find a HUD-approved housing counseling agency, borrowers can use HUD's online search tool or use our phone search by calling (800) 569-4287 or (202) 708-1455 (TTY). For borrowers whose homes are destroyed or damaged to an extent that requires reconstruction or complete replacement, contact an FHA-approved lender about FHA's Section 203(h) loan program. This program provides 100 percent financing for eligible homeowners to rebuild or purchase new homes. For borrowers seeking to purchase and/or repair a home that has been damaged, contact an FHA-approved lender about FHA's Section 203(k) loan program. This program allows individuals to finance the purchase or refinance of a house and the costs of repair or renovation through a single mortgage. HUD Secretary Scott Turner made the announcement while touring a disaster zone in Altadena with Los Angeles Supervisor Kathryn Barger, whose district includes the Altadena area. 'HUD's extension of the foreclosure moratorium is a lifeline for wildfire survivors in Los Angeles County who are facing immense hardship,' Barger said in a statement. 'I appreciate Secretary Turner's leadership and commitment to ensuring that families impacted by these devastating fires have the time and support they need to recover. This critical relief will help stabilize our communities as we work together to rebuild and heal.' Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
