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Can one purchase a foreclosed home with a FHA loan?
If yes, how?
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1 Reply
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Indeed, it is possible to buy a foreclosed home with an FHA loan. However, some considerations need to be taken into account:
Property Condition:
The property must meet the minimum property standards set by the Federal Housing Administration (FHA). This means the house must be in a habitable state. Safe, secure, and structurally sound. If it doesn’t meet this criterion due to its poor condition, it might have to undergo repairs before becoming eligible for FHA financing.
Consider applying for an FHA 203(k) loan if substantial repair work is required. These loans allow financing of both the purchase price and renovation costs.
Appraisal Requirements:
A HUD-approved appraiser will evaluate whether or not the estate complies with HUD’s minimum standards. Should it fail to do so, the seller (who might be a bank) could be asked by the appraiser or yourself through an FHA 203(k) loan, again covering repair expenses.
Offer Process:
Compared with regular residential purchases, buying foreclosures can involve more complex procedures. Frequently they are sold on an ‘as-is’ basis, i.e., without any repairs done by the seller (often banks or government agencies like Fannie Mae). You must also remember this when making your bid and arranging for funding.
Government-Owned Foreclosures:
Government-owned properties, such as those belonging to the Housing and Urban Development Department (HUD), can also be bought using FHA loans. These houses were originally financed through this program before being repossessed following default on mortgage payments, etcetera.
Loan Limits:
Ensure that what you pay falls within what’s allowed under FHA lending guidelines applicable where you intend buying, including nearby counties, if need be. Since limits differ from one county area to another based on local real estate market conditions prevailing at the purchase agreement execution date, etcetera.
Down Payment:
Ordinarily, FHA loans require a minimum 3.5% down payment. However, credit score requirements must be satisfied before becoming eligible for this low-down payment facility.
Acquiring a foreclosed property using an FHA loan is possible. However, certain criteria must still be met, and the process could involve more steps, such as repairs and appraisals. If significant repair work is required on such houses, consider taking up an FHA 203(k) loan.