Can an FHA loan be used when purchasing a Foreclosure?

Asked by Brittany, Outside U.S. Tue May 15, 2012

We have an FHA loan preapproval however in order to find a home close to work, we would need to buy a foreclosure. (Homes are 400k in this general area and we are only able to afford 175k). What are the rules when purchasing a foreclosure?

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Rosejains, Agent, New York, NY
Thu Jul 23, 2015
FHA-insured mortgages go into foreclosure every day. Mortgages with insured loans from the Federal Housing Administration (FHA) that go into foreclosure represent unlimited opportunity for experienced and novice investors alike. You can access the complete list of FHA foreclosure homes on the HUD Home Store site.

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2 votes
Ian A. Wolf, Agent, Morristown, NJ
Tue May 15, 2012
I agree with the other answers. As far as rules when purchasing a foreclosure... Just make sure that if you are going FHA you are using a lender that is highly experienced and can close FHA loans when they say they can. Foreclosures often have a penalty for going beyond the closing date, and if you don't ask for the right time frame to close up front, there could be per diem penalties, loss of deposit, or even loss of the deal itself. Foreclosure transactions are business for the banks so they are not very warn and accommodating. Here is a lender that I have used successfully on 203k loans on foreclosure property a couple of times now. It might be a good resource for you:

Jeremy Knapp
Loan Originator
Annie Mac

Hope that helps.
0 votes
Marsha Bowen…, Agent, Livingston, NJ
Tue May 15, 2012
Hi Brittany,

You can buy a foreclosure with a FHA loan, however the condition and repairs that might be needed could force you into needing a FHA 203K loan. This will allow you to borrow additional funds to fix up the home to make it livable. The only catch is your mortgage approval will need to include both the cost of the property and the additional amount for required repairs.

Best of luck to you!
0 votes
Michael Emery, , Minneapolis, MN
Tue May 15, 2012
If homes in your area are going for 400k and you are concentrating on homes in the 175k bracket, chances are they're going to need significant work to make them habitable.

When it comes to the condition of the home, FHA loans are more restrictive in what they will approve. The biggest no no with FHA is peeling paint. But there is a list of defects that could prevent you from going with a traditional FHA loan as they will often require the owner to fix defects and banks don't fix defects.

And if you opt for a FHA 203k loan this would allow you to borrow the money to make repairs. However the repairs still need to be made and the monthly payments will reflect the cost of the home PLUS the money that was borrowed to make repairs. This might well price you out of even the least expensive home.

Talk to a lender about 203k loans as well whether you could be approved for a conventional loan (which don't have the condition restrictions of FHA loans).
0 votes
Annette Levi…, , New York, NY
Tue May 15, 2012
You can use a FHA to purchase a foreclosure. If the house needs work not updating then you can use a 203K FHA mortgage.
0 votes
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