1) 3.5% minimum Downpayment.
2) Up to a 6% Seller Credit allowed for buyer's closing costs and Seller concessions (non-FHA max is 3%).
3) FHA requires that identified safety/health issues be corrected.
4) FHA allows up to $8,000 in financed energy efficient upgrades without negatively affecting borrower's debt-to-income ratio.
5) Cash reserves not required.
6) Upfront Mortgage Insurance may be financed.
7) Non-occupying co-borrowers are allowed.
8) High and flexible qualifying ratios.
9) FHA loans are assumable.
10) No pre-payment penalties.
11) Will consider "compensating factors" in determining whether a loan should be granted.
Perhaps the only real negative:
While FHA only requires a 3.5% down payment this means you will be financing 96.5% of the sales price and you will have to pay Mortgage Insurance for a MINIMUM of 5 years, or until you have paid your original LOAN AMOUNT down to 78% (not that the loan amount is 80% of current market value, which is typical for non-FHA MI removal). This "78% or 5-year Rule" before Mortgage insurance can be terminated is covered here: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/fi
If you need a sharp FHA loan broker I have two great referrals (just email me offline).
As others said, yes FHA will lender on a REO or short sale.
I think there's a bit of a misconception that FHA loans take much longer than conventional. The only difference with FHA and conventional loans is that on the FHA appraisal, the FHA appraiser can ask for "health and safety items" to be fixed prior to close. But in many cases, they don't ask for anything to be fixed. Make sure the property has a working stove and a heating system that works, FHA requires this.
An FHA loan can be assumed by a new buyer, which is a fantastic selling advantage, especially if rates rise in years to come. But that new buyer still has to fully qualify with credit and income documentation to assume that loan.
Some corporate owned properties involve custom seller contracts that may not leave enough time and may leave you exposed to being committed to the sale before you have been approved.
The two key actions to take, therefore, are these:
1. Work with your lender to get pre-approved (not pre-qualified) for FHA loans - go through the whole application process - that may short cut the final approval considerably
2. Make sure the Realtor representing you negotiates enough time in the purchase agreement to complete the application process. Understand there may be clauses that automatically remove a contingency before you might be ready, and develop a plan to deal with such clauses. You Realtor will be able to assist you
... Regards .... Wayne
Yes - you can obtain FHA loans to purchase short sales and REOs. Realize that the appraisal process and underwriting process can be more "picky" about any repairs needed. I have been successful with FHA loans and also getting the seller to credit the buyer closing cost up to 3%.
FHA will scrutinize appraisal which could interfere with using that loan to purchase a property that is in need of repair. As others state, a 203K would be an alternate option.
From my experience, short sales are best negotiated when the potential buyer is ready to close without asking for concessions and considerations. Short sales can be successful and expedited using a bridge loan or hard money. At the right price the buyer can still see a tremendous bargain even after paying points and the higher interest rates for the hard money (short term) loan.
Buying foreclosures and short sale properties are most profitable when the buyer is flexible and not emotional about any particular property. My advice is don't fall in love with the house until you get everything in line.
Washington State Housing Finance Commission provides down-payment assistance to qualified first time buyers on your FHA loan, and you can also ask the seller to pay all or some of your closing cost. I have not experienced any delays with the appraisal process. REO's here in Clark County are usually the best buy. FHA does require that you have a home inspection - which every buyer should do anyway!
One thing to keep in mind... The FHA does not make loans, they are just the gov't entity that insures them. It is a good loan also because it is fully assumable after one year, so if interest rates go up, you can sell the house subject to the loan, as the loan has value. Much like seeling a property with a good lease.
Good Luck on house hunting.
I am a mortgage broker. If I can be of service, please let me know!
877-238-6324 Ext 704