Know the basics of FHA loan rules and you stand a better chance of selling your house or condo.
If your house passes the FHA rules, it will appeal to buyers who plan to use an FHA-insured mortgage. If your house doesn’t qualify for an FHA loan, you’re cutting out 30% of potential buyers.
FHA is especially important to first-time homebuyers and those with small downpayments because it allows borrowers with good credit to make a downpayment as low as 3.5% of the purchase price.
TIP: The FHA lending limit for single-family homes varies by county in Indiana. Marion County and the surrounding counties have a limit of $299,000.
Here’s how to make your home appealing to FHA borrowers:
Know the FHA loan limits in your area
Start by checking to see if your home’s listed price falls within FHA lending limits for your area. FHA mortgage limits vary a lot. In San Francisco, FHA will insure a mortgage of up to $729,750 on a single-family home. In the White Mountains of New Hampshire, the loan limit is $271,050. In Indianapolis, the loan limit is $299,000 for a single family home or $382,750 for a 2-unit/duplex.
Most buyers will ask for a home inspection, whether or not they’re using an FHA loan to buy the home. You must give FHA buyers a form explaining what home inspections can reveal, and how inspections differ from appraisals.
How much do you have to repair?
If the home inspection reveals problems, FHA will not give the okay to buy the home until you repair serious defects like roof leaks, mold, structural damage, and pre-1978 interior or exterior paint that could contain lead.
Dealing with FHA appraisers
Help the lender’s appraiser by providing easy access to attics and crawl spaces. The appraiser is required to do a “head and shoulders” review, and must photograph those areas.
When a buyer’s mortgage lender orders an appraisal, the appraisal is assigned in a round-robin fashion to appraisers in that area that are on the FHA approved roster. An FHA appraisal stays with the property for four months.
Help with FHA closing costs
Many FHA buyers will need help with the costs of purchasing a home, aside from the downpayment. Those costs include closing costs, prepaid items (a one-year homeowners insurance policy), and establishing an escrow account for the future payment of property taxes and homeowners insurance. A prime way to make your house FHA-friendly is to offer help with those costs.
FHA currently allows sellers to pay up to a maximum of six percent of the sales price to help cover closing costs, prepaids expenses and escrow items.
If you’re selling a condo
FHA also has to approve your condo before a buyer uses an FHA loan to purchase your unit. Be sure your condo is FHA-approved for mortgages. The list has been updated, so if your association was approved a year ago, check again to make sure it’s still on the approved list.
FHA generally won’t insure loans in condo associations if more than 15 percent of the unit owners are late on association fees. Ask your property manager or board of directors for your association’s delinquency rate. Other rules involve the master policy for the HOA, cash reserves, how many units are owner-occupied, etc. If your condo isn’t on the approved list, talk to your HOA about applying for approval.
FHA loans for planned-unit developments or townhomes
Typically, if your home is in a planned-unit development or is legally classified as a townhome, there are no issues with a borrower financing their purchase with an FHA loan.