With the warmer climes we have been experiencing, the spring real estate market won't be far off. Local housing prices being what they are, it can be challenging for first-time home buyers, and/or for buyers who don't have a large amount of money to use as a down-payment - to compete in this seller's market. Since you may be competing with other cash buyers, or buyers with more cash to put down -- now is a great time to connect with an experienced buyer's agent to help you navigate the process - including making introductions to experienced mortgage brokers and loan officers. The following article published in the Daily Hampshire Gazette on 2/21/20, discusses the subtleties to seeking an FHA loan - which might be a great option for certain buyers.
Can’t find an affordable FHA-approved home? You have options
By KATE WOOD
Americans took out nearly $150 billion in loans backed by the Federal Housing Administration to buy homes in 2018. Nearly 83% of those FHA borrowers were first-time home buyers, according to the Department of Housing and Urban Development.
It’s unsurprising that FHA loans are especially popular with first-time home buyers, due to more lenient credit score and debt-to-income (DTI) requirements. But with scores of buyers searching for affordable entry-level housing, finding a place to call home can be a struggle.
In pricier markets, even the FHA’s 3.5% down payment option might bust your budget. Houses that have a low asking price but “need TLC” may not pass an FHA appraisal. And in highly competitive markets, it can be difficult to make an offer that gives you an edge on other home buyers.
What’s an FHA buyer to do? Here are three options.
Priced out? Look at FHA-approved condos
If an FHA-approved single-family house would push your budget past its breaking point, consider making your starter home a condo.
As of October 2019, borrowers can get FHA loans for individual condo units without having to worry about whether the entire complex is FHA approved. John Graff, CEO of Los Angeles-based Ashby & Graff Real Estate, said via email that this change should increase the inventory of FHA-approved condos, offering a broader selection of affordable homes.
For example, in Denver, the 2020 FHA loan limit — the maximum loan amount the FHA will guarantee — is $575,000 for a single-family property across most of the metro area. Looking at 2019 data from the Denver Metro Association of Realtors, that’s enough to cover the steep average sale price of $515,149 for a single-family home. But buyers there could save substantially by looking at condos, which have an average sale price of $366,937.
You’ll want to budget for condo homeowner association fees as well as property taxes. But generally, opening up your search to include condos should bring you lower-priced options.
Found a fixer-upper? Get an FHA 203(k) loan
In markets with older housing stock, passing an FHA appraisal could be a bigger obstacle than cost. Listing photos that make a low-priced house look like a charming fixer-upper can conceal major issues, Corning, New York, real estate agent Jennifer M. Baker noted in an email.
An appraiser’s key objective is ensuring the property is a sound investment for your lender. But an FHA appraisal isn’t just about value. To be eligible for an FHA loan, the home must also meet the FHA’s minimum property requirements by being “safe, sound and secure.”
If you see potential in a house that won’t pass an FHA appraisal, an FHA 203(k) loan could help you afford the needed work. It has similar requirements to a regular FHA home loan, but the costs of renovating the property are rolled into the total mortgage amount, which is based on the “as is” appraisal and an estimate of the home’s value once the renovation is complete. Using a 203(k) might mean living in a rental a little bit longer — costs you can include in your new home loan — or in a construction zone. Either way, you’re turning a house into your home.
Facing stiff competition? Be flexible
There are affordable homes out there, but with many buyers competing for them, it’s a seller’s market.
“When a home goes on the market up to about $250,000, we’ll see an actual race to get to that home,” says Michelle Sloan, broker and owner of Re/Max Time near Cincinnati. “We’ve seen up to 10 offers within 24 hours of a property being listed.”
Though you can use strategies to make your offer more attractive — like being flexible on the closing date — you may also be able to find more options by changing your home search criteria.
A short commute may be a high priority, Sloan says, but allowing for a little added drive time could get you more potential properties. If you’re wedded to a particular location — for the schools, maybe — try to whittle down your wish list. Maybe three bedrooms will work instead of four.
An experienced buyer’s agent can help you weigh possible trade-offs, supply insight into your local market and encourage you throughout the process.
You may not get the first home you submit an offer for — or even the fifth — but “keep looking,” Sloan recommends. “There is a home out there for everyone!”