The FHA Way


I have to admit, I have no actual experience bringing a buyer through the treacherous waters that seem to be present when using an FHA loan to get a home in this area….but all of the horror stories I keep hearing sure give me the creeps. Once upon a time, before the mortgage meltdown, there was no such thing as an FHA loan in this area. There were conforming loans that all seemed to fall under the banner of Fannie and Freddie and those all seemed to be the sub prime junk that sort of feels like ancient history now.

Since the rebirth of mortgage lending there seems to be two types of buyers, there’s those with 20% down and those without. For those without, there’s the choice of a conventional loan that will require private mortgage insurance or an FHA loan that allows as little as 3% down, but has very strict rules and guidelines for obtaining one.

Recently, I had some buyers attempting to buy a house with 10% down and their lender recommended FHA. The house is in real need of work, in fact, it’s a fixer upper. FHA’s appraisal guidelines would virtually eliminate this house. The appraiser almost performs an inspection when visiting the house. All doors, windows, lights and appliances need to be operable. All drains need to function and the toilet needs to work. There can’t be holes in any walls. If there are problems in the eyes of the appraiser with a given property a list will be created and the loan will be contingent upon all of the items listed being corrected for the loan to go through. The cost of this FHA appraisal is over $600.00 and if it requires work a second appraisal must be done…for another fee over $600.00. I’ve heard that sometimes FHA will require a second appraisal even if no problems are found on the first appraisal…just to be sure!

One appraiser told me he’d heard of roofs requiring replacement and homes demanding new paint. Here’s something I know for sure…if you mention that your buyer is getting an FHA loan and you’re in a multiple offer scenario you’ve just committed a social faux pas. I’ve seen several sellers this year choose offers with far less money that have 20% down rather than chance an FHA loan.

At the same time, I hear lenders tout their FHA products frequently and wax poetic about how they’ll be able to pull it off to closing easily and with minimum pain. I’ve got 8 open escrows right now…none with FHA loans. I’ll let you know how it flys when I get one.


  1. I’ve been waiting for you to write something about FHA loans. They are such a pain in the butt. My husband and I are currently trying to buy and we only have about 3.5% to put down. The problem we are continuing to run into is that every “townhome” that we look at is coming back technically as a condo and therefore, we’re required to get a HUD spot approval, which has SO many requirements. It’s SO frustrating!

  2. I’ve been looking for this issue online to see if it’s as bad as I’m hearing. My lender swears that FHA is a piece of cake, (actually all the lenders we’ve spoken to say they’re writing more FHA than conventional loans) and my realtor is freaked out, telling us that we’ll never get a place in a competitive situation and to figure out 10% or forget it. We could get to 10% but it would hurt.

  3. It’s funny Steve…I hear the same thing from the lenders I work with too! Out of one side of their mouth I hear pie in the sky (when I have a client with 5% down) and out of the other side I hear serious horror stories (when I have a 20% down buyer and we won’t be using FHA). Here’s one thing I completely agree with your agent on…your screwed trying to compete with 3% down & FHA. In fact, don’t waste your time. I’m not too sure about 10% down either…

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