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  • Writer's pictureRebecca Richardson - Mortgage Consultant

What People Get Wrong About FHA Loans

There’s a ton of misinformation out there about FHA loans, so I’m here to set the record straight. If you’ve already ruled out an FHA loan because you think you aren’t eligible, keep reading!

Property Conditions

“I don’t think that house can go FHA...”

Think about what that sounds like. That would be like me saying, “I don’t think that house is going to have any comps,” which would be silly because I'm an expert at mortgage guidelines – not at calculating a home’s value.

It’s a common misconception that a home needs to be damn near perfect to get an FHA loan on it. But a home that’s in horrible condition can still get approved for a conventional loan! Here’s where my expertise does come in to play.

Now, it is true that there are FHA minimum property standards. Things like:

  • No sink holes

  • Not in a flood zone

  • No septic system failure

  • No rodent infestation

  • No holes in the roof

The list goes on, but it sounds pretty reasonable, right?

While there are things that can be a little annoying – like peeling paint needs to be scraped off and the area repainted – most of these requirements address significant health and safety concerns, things that can still be a problem if a conventional loan is being used! So, the next time you hear something like this, remember to do your research!

FHA House Hacking Hiccup

Does this sound familiar? Invest in real estate by renting out your small, sad house, then buy a multifamily home with only 3.5% and never pay a mortgage payment again!

If it does sound familiar, be wary. It doesn’t work like that exactly.

While I’m 100% on board with finding smart ways to leverage homeownership, y’all have got to be careful about where you’re getting your information! Clickbait content like this will backfire fast.

In this example, if you own a home but plan to rent it out and purchase a new home with an FHA loan, rental income on the departing residence cannot be counted unless:

  • You’re moving more than 100 miles away

  • An appraisal confirms 25% equity and average market rent for the home

  • There’s a signed lease agreement for at least one year and proof of security deposit or first month’s rent is provided

I know, the details aren’t as fun. Want to know what’s even less enjoyable? Losing money because of advice from someone who didn’t know what they were talking about.

FHA is for Everyone

Whether you like it or not, there’s a shift in the housing market. For years, there’s been favoritism towards conventional loans – most of it based in biases and misinformation. But now, that’s changing.

Take FHA, for example. You’ve probably heard it’s only for first-time homebuyers, or that

FHA buyers must have bad credit, or that appraisers are so strict about the home’s condition. As someone who has closed thousands and thousands of mortgage loans, I’m here to tell you that’s wrong.

FHA is for everybody! It can be the homeownership path for buyers who want to:

  • Have a lower rate or lower mortgage insurance

  • Buy a 2-4 unit property with a low downpayment

  • Have the option to refinance without an appraisal in the future

  • Make energy-efficient improvements

  • Have flexible debt-to-income ratio requirements

If you’re someone wanting to buy a home or a realtor wanting to make a sale, take a look at FHA loans before you make a final decision, and feel free to reach out to me if you have any FHA-related questions!

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