All About FHA

Though we have posted about FHA before here, we wanted to write another post with an overview of "all about FHA:" when FHA is a good idea, when it's not, and what are some things you can do as a realtor, seller, or buyer to help your FHA loan move smoothly and quickly! Though we don't consider ourselves FHA experts, we have done hundreds of FHA appraisals over the years and  have seen many different types of cases. We hope our experience can help you with your future FHA transactions! At the end of the post, you'll find a link to a FHA Checklist we put together to help you spot the repairs most commonly needed on an FHA loan. Enjoy!

When Should I Go FHA?

As we wrote in this post, there are some major benefits to buying a home with an FHA loan, one being the significant financial factor. If you buy a home with an FHA loan, the minimum down payment is only 3-5%, rather than 10-20% when you get a conventional loan. Furthermore, this down payment can be made with a gift from a family member. If the home you are looking to buy is in good shape, you have good credit (~580+), and you don't have a large chunk of change for a down payment, FHA may be best for you. As an added bonus, the Obama administration recently directed the Federal Housing Administration to lower annual mortgage insurance premiums (required for an FHA loan) a full 1/2 percent! According to a statement from the White House, this means an average savings of $900 annually.

If I go FHA, how can I make sure my loan doesn't get held up?

When procuring an FHA loan, it all boils down to health and safety. The FHA wants to make sure they won't be held liable for any accidents or safety issues that come up later, so they can be picky about things that you might not even notice. Your appraisal can get held up until these issues are resolved, and it's not fun for anyone. Some of the most common issues are:

• Smoke & CO Detectors. Make sure you have them (and that they work)!
• Water Heater Strapping. In California, water heaters must be double strapped for earthquake safety.
• Appliances and major systems (HVAC, electricity) need to be in working and testable condition. This means they must be turned on at the time of the appraisal so the appraiser can test them!
• Dry rot, cracked and/or peeling paint. These will most likely need to be remedied.
• Drainage. This is an appraiser call, but the general requirement is that there needs to be no drainage issues. If the appraiser deems gutter repair or installation necessary to help with drainage, this may be required.
• Raised linoleum, loose tile, cracked or rising cement. Some appraisers may not deem a minor case a safety issue, however, it is possible that things like this would need to be repaired, especially if it is severe.
• Missing plug/switch covers. Make sure they're all covered, just in case.
• Pool safety. The California Pool Safety Act requires that pools constructed or remodeled have one of the seven safety measures listed here. If the pool does not have one of those measures, one will be required.

Though it would be easier if there was a cut and dry "FHA Checklist," the reality is that it really comes down to the appraiser's educated opinion of what is a health and safety hazard and what is not. Even FHA does not have specific answers for every issue, as we found when we researched the pool issue. If there is a large, questionable issue such as cracks in the foundation (we have seen this) or possible infestation (also seen this), the appraiser may request another expert opinion before the loan is funded. There might be random issues that you haven't even noticed, like a railing missing on the stairway. A good thing to do to check a home for FHA readiness is do a walk through and imagine you are about to move in with a very mobile 18-month-old baby. If you look at it that way, you might get closer to the way that appraisers are supposed to do an FHA inspection. To help you think about these issues, we've put together a checklist of the most common FHA repairs needed on our appraisals. Just click here to download the PDF: FHA Checklist. Remember, it's not comprehensive with every FHA repair that may be required, but it does cover the ones we see most often.

Realtors, have you experienced any strange requirements for an FHA appraisal? And appraisers, what is your experience with FHA loans? Let us know in the comments!