With no more 100% conventional financing available, many first time home buyers are turning to the FHA and VA lending. While the FHA loans require 3.5% down and, if you qualify, the VA loans requires zero down, these loans do have their challenges.
With the interest rates still reasonable, many investors and conservative borrowers are out making their moves on lower end properties that can make the offers from FHA and VA borrowers less appealing because of the stringent property condition requirements and financial volatility of the buyer and their qualifications.
The number of well maintained homes grows limited in San Diego County, increasing the number multiple offers. While it is possible to find a clean home that qualifies for FHA or VA lending and still have the seller pay your closing costs, it is more challenging. When competing with multiple offers, being able to pay some of all of your closing costs will definitely help your position.
However, if you have limited funds and need the seller to help pay for your closing costs, then you should plan to look at homes in a slightly lower price bracket and plan to offer above the asking price, or be prepared to settle for a home that is slightly dated but functional.
While the home condition guidelines for the FHA and VA loans are very similar, they are not always clear cut. The home will be inspected by a specially trained appraiser who will note any safety or health issues that may pose a risk for the buyer and require they be fixed before close of escrow. Below is a list of some of the most common list of repairs that will require attention before having an appraisal for a FHA and VA loan:
1. Any useful components (appliances if present, floor covering, etc.) of the home, especially the roof, should have 2 years of useful life remaining. A roof should not be leaking and have no more than 3 layers of shingles.
2. If the homes was built prior to 1978 , exterior and interior paint that is peeling must be scraped and painted.
3. Must have a functioning heater. Wall heaters must be designed to heat the entire home.
4. Health and Safety Hazards (ie. electric garage door opener won't reverse with resistance; burglar bars, etc. )
5. Broken windows and doors should be replaced.
6. Safety handrails should be installed in open stairwells of three or more stairs.
7. Termite inspections required, as well as any infestations of any kind should be exterminated (ie., insects, mice, bats, etc.)
8. Damaged or inoperable plumbing has to be repaired.
9. Structural or foundation problems must be repaired. Crawl spaces must be accessible for inspection.
10. Electrical box/system should have no frayed or exposed wires.
VA and FHA requires that Condo complexes be approved. Since very few FHA and VA loans were being used when many of the newer developments were being built and some of the developers did not want to pay the extra fees required to get that approval, you may want to check these websites for complexes that are approved . For FHA see https://entp.hud.gov/idapp/html/condlook.cfm and for VA http://condopudbuilder.vba.va.gov/2.2/frames.html.
Sometimes, the buyer can negotiate in the purchase agreement that certain obvious conditions be fixed. However, quite often the sellers may not be able to or won't repair these items. So it may be in your best interest to avoid the problem homes all together.
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