Recently I have encountered a couple transactions that needed a little extra help. Specifically, how do you finance a house that is perfect in all respects except that it is missing water supply lines?
Most of my clients are first time home buyers with great jobs, great educations and great credit. Most have money saved, but few have 20% of the value of the home they would like to purchase. So, one of the best options for this type of buyer is the FHA loan. FHA is a great loan product for those buyers who have little money for huge down payments. However, FHA comes with a few extra guidelines that often make it impossible to fund on houses that need a little extra work, but are for the most part in great shape. Enter the 5% down conventional loan.
“Access to conventional loans with 5% down has been severely limited over the past several months due to tightened PMI guidelines. Recently, several PMI companies loosened these restrictions. While still much more difficult to qualify for versus loans with 10% down, both first-time and repeat borrowers with at least a 680 credit score can now technically qualify. There are strict limitations on total debt-to-income ratios and it helps if the borrowers have at least 2 months of reserves left over after the 5% down. Buyers should still consider FHA as an option here, as these loans only require 3.5% down and they are ultimately much easier to qualify for. However, because some properties will not qualify for FHA, this conventional loan option will end up helping a lot of people” (Thank you Mark Anderson)
What properties might not qualify for traditional FHA financing?
Bank owned properties without HVAC systems
HUD owned properties without water supply lines
Short Sales with roof issues
In short any home that might have some immediate occupancy issue and where there is no live seller willing to take care of any repairs prior to closing, may not be a good candidate for an FHA loan. If you are looking at any listing which states “as-is, seller to perform no repairs or inspections” it is likely (though not absolute) that the home will not qualify for traditional FHA financing. One option to consider is the 5% Conventional.
As always, your buyer’s agent and your lender working together should be able to help you navigate this process. Just know that there are many options to explore when searching for financing. Loan products are not one-size fits all and it is very important that your financing match your house purchase. If you only qualify for a certain type of financing you and your agent need to know that up front so that you are looking for the right place.