In 2005, the Federal Housing Administration backed 4 percent of American mortgages. By 2010, it was 40 percent. The housing crunch of the early 21st century has made many lenders more cautious, so more homebuyers need FHA insurance to land an affordable loan. Both the home and the lender need FHA approval.
The FHA won't insure a mortgage if you take it out with an unapproved lender. Lenders have to apply online with the FHA to qualify to originate or underwrite an FHA-insured loan. Lenders that want to sell your FHA mortgage to a third party have to get approval for that, too. Approval requires submitting the lender's articles of incorporation or partnership agreement, its business credit report, credit reports on officers and owners, and other information.
You can't buy a house with the FHA's help unless the FHA appraiser approves it. A conventional appraiser looks at what the house is worth, but an FHA appraiser has to consider health and safety problems as well. If the windows are broken or stairs unsafe, for instance, conventional appraisers mark down the value of the house. An FHA appraiser, however, can't approve the purchase until the owner fixes the problems.
If you're looking to buy a condominium, the FHA doesn't just approve the condo, it has to approve the community too. For example, if 15 percent of the members are more than 30 days late paying their monthly dues, the FHA won't approve the condo association. That blocks you from getting an FHA-insured mortgage. The FHA also won't approve the association if more than 50 percent of units are rented out, rather than owner-occupied.
The Department of Housing and Urban Development has online lists of FHA-approved lenders and condo associations. You won't know whether the house you want is FHA approved until after the appraiser visits. Unapproved homes can be fixed, but if the FHA doesn't sign off on your condo, there's not much you can do about it. If you want an unapproved condo you can buy in without the FHA backing your loan, if your finances will allow that.
- New York Times; Buyers Face Higher Fees at FHA
- Department of Housing and Urban Development: FHA Lender Approval Application Instructions
- HUD: How to Become an FHA-Approved Lender
- Atlanta Georgia Real Estate Guide: The FHA Appraisal – Which Homes Qualify for FHA loans?
- HouseLogic: FHA Condo Approval Changes Compound Housing Woes, Limit Condo Options Read more: http://www.houselogic.com/blog/home-loans-mortgages/fha-condo-approval-changes/#ixzz2MwJhusXN
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