This isn’t meant to scare anyone, but if you’re a First Time Home Buyer in Minnesota (or any other state for that matter) you need to be aware of some loan details that may derail your home purchase.
Getting a loan insured by the Federal Housing Administration (FHA) means you only have to put 3.5% down on the purchase price which is beneficial to a lot of First Time Buyers, but this advantage comes with a couple string attached.
The most important thing to note is that FHA typically has tighter appraisal standards, which means the house has to be in better physical condition than it would have to be for a Conventional mortgage appraisal. If you make an offer on a house in bad shape – usually a foreclosure or short sale – and the FHA appraisal comes back negative, you may have some trouble on your hands.
The key issues that an FHA appraisal might be rejected for are:
- Plumbing
- Electric
- Foundation
- Water Heater
If there are any issues with these utilities you may not be able to use a normal FHA mortgage.
You may have the option of using an FHA 203k loan, which is a rehab loan for FHA buyers that can help push the sale through, and actually finance the repair costs into the loan rather than coming up with the cash to fix them.
I’ll post later this week on the FHA 203k details, but for now be aware that even though FHA is a great program for new home buyers it comes with a few caveats.
