FHA loans do not necessarily close "slower". But it is true that in order to protect the FHA insurance fund as well as borrowers, the property must meet certain minimum property requirements. On a normal FHA loan, those requirements must be met prior to closing, to avoid the risk that the mortgage loan will be ineligible for FHA mortgage insurance. Foreclosures (REO properties) are generally sold as-is, with a prohibition on buyer repairs prior to closing, so buyer/borrowers run the risk that a required repair will be a deal-breaker for their FHA purchase mortgage. This is also true with VA loans.

Conventional loans (i.e., non-government loans, such as conforming loans) evaluate the subject property from a different, more relaxed perspective. Minor issues that could be a deal-breaker on a government loan will usually not be a concern on a conventional loan. (Major issues can be problematic, no matter what type of mortgage.) However, conventional loans generally require larger down payments, especially in the current financial climate, where it has become much more challenging to secure private mortgage insurance (PMI) for conventional loans exceeding 80% of the value.

If you wish to purchase a property that requires repairs (regardless whether or not it's a foreclosure property), and you want to use a government loan for financing in order to do it with little or no down payment, there *are* options. For instance, we could do an FHA rehab loan, which allows the repairs to be financed into the purchase mortgage. Another alternative is a USDA loan, in which the required repairs can be escrowed and completed after closing. And yet another alternative is to buy a HUD home, which is any property that had an FHA mortgage, went into foreclosure, and is now being sold directly by HUD, which oversees FHA. We have a special FHA program for HUD homes that allows certain repairs to be escrowed and completed after closing - and in this program, FHA's normal 3.5% minimum down payment is waived. Buyers only need to put down $100 (yes, that's not a typo - just a hundred bucks).

To discuss your options, please feel free to contact me: James Wheeler, Senior Loan Officer, 813-600-3428.

Thanks! That really makes sense. I hadn't thought about the fact that a FHA might turn off banks, but it really does make sense because I heard FHA closes slower.

It depends on the bank, but most of them will try to make the house mortgageable if the offer is good enough. If the price is so ridiculously low, however, that it will sell to an investor who can make a profit by performing repairs himself, they usually opt for that route, as often the buyers are cash and will have a quick closing. When I list a property I reccommend whether or not to make the repairs based upon how much work needs to be done, if the property seems like a good investment property and the listing price. The property needs to have basic items done to secure it (tarping roof, changing locks, boarding windows, etc.), cleaning out debris and health hazard removal, however over and above that is on a case by case basis. Are you purchasing a foreclosure? You can make plumbing and heating, roof and potable water (or anything else for that matter) part of your offer. Realize, however, that if it is a really good deal a buyer with more resources is like to get it ahead of you.

FHA does indeed have a relatively high standard, and many banks that have more than one offer on a property, or that have an property that looks like it will sell quickly, will go with cash or a conventional loan, even if the offer is lower than the FHA. The banks are not necessarily concerned with "safe and liveable" as they are in business to make money. They are more concerned with "Will this be able to close?" and "How Much?" and "How Quickly". They look at the Seller's Net.