FHA loans are government-backed mortgage loans offered by the Federal Housing Administration that can be useful if your credit rating and liquid assets are not up to par.
You may be property shopping and come across a foreclosed property that appeals to you and you wonder if it’s possible to buy it using an FHA loan; the answer is yes.
Let’s take a deeper look at how an FHA loan might be used to purchase a foreclosed house, as well as the benefits and drawbacks.
How to Get FHA Loans for Foreclosures
You can use an FHA loan to purchase a foreclosed home if it is in a habitable shape.
Also, using an FHA loan to buy a foreclosure, may provide additional challenges, putting you at a loss if you are vying with all-cash bidders who don’t have to worry about appraisals or inspections.
Advantages And Disadvantages of Purchasing Foreclosures with An FHA Loan
Using an FHA loan to purchase property foreclosures has its benefits and drawbacks, just like any other type of real estate funding. The following are some of the most typical benefits and drawbacks of buying FHA foreclosures.
Modest upfront payment: FHA loans typically have low upfront payment obligations, as little as 3.5 percent.
Credit standards are less stringent: borrowers with a limited credit profile and a credit rating as low as 580 may be eligible for a mortgage.
Conditions that are less restrictive: FHA loans may be a good place to start for first-time home purchasers who have less-than-perfect credit and limited cash savings.
You get exactly what you see: Be aware that foreclosures are sold “as is,” which means the present owner will not make any renovations or issue any warranty coverage regarding the building’s state.
This implies that all necessary repairs and upgrades on the property are the responsibility of the buyers.
Passing the habitability requirements of the FHA: Foreclosures must pass an FHA appraisal to guarantee that they fulfill HUD’s minimum property specifications.
Competition is a result of bargains: Regrettably, for would-be homeowners, the possibility of a good deal on a home can entice investors in droves. Many of these competitors will be looking for all-cash offers, making an offer that includes any type of financing less viable.
Slower sales process: FHA loans might take a little longer than traditional financing from request to closing due to their stringent qualifying standards and lengthy qualification procedure.
Best Places to Look for Foreclosures
The bank is a terrific way to get a great deal on a house with a wide range of opportunities. Most real estate listing sites, fortunately, have many foreclosures for sale.
The HUD Home Store, Fannie Mae’s HomePath, and Freddie Mac’s Home Steps are all good places to look for and buy foreclosures.
Conclusively, FHA loans can be used to buy foreclosed homes, but you must ensure that the foreclosed house you are interested in must be habitable and have it at the back of your mind that relying on an FHA loan can put you at a disadvantage relative to all-cash buyers.