If you are thinking about buying a condo, townhouse, or even a regular house in Seattle, WA utilizing an FHA loan, you may have been told by your lender that you have to “watch out” to make sure the house you choose to buy will qualify for a loan through the FHA 203(b) government-backed home mortgage program. What does that mean?
I had a first time home buyer come to me recently with questions about whether she could make an offer on various kinds of property if she was getting her mortgage backed by the FHA loan program.
The answer is “YES!” – Even in Seattle, WA you can buy a house with an FHA loan, as long as the property meets the lender guidelines.
I spoke with one of my favorite and best mortgage lenders – Barb Huber– and got you some more details on what is going on with the FHA program.
1) Using An FHA Loan To Buy Pre-Existing Condos:
The FHA program has certain rules that town home and condo developments have to follow for the loan to fit the FHA program guidelines. For example, 70% of the units are supposed to be owned by OWNERS (and not renters, and not builders). And they want the development to have a good budget so there are not large unexpected assessments.
In order to allow people to buy in the development with an FHA loan, the HOA has to keep their paperwork up to date. This benefits the condos because more people can buy in there (FHA buyers). However, in some developments where there are a lot of investors/landlords, they may not want to do that and they may prefer to remove the rental cap and cater to a different type of buyer/resident. Also, it takes effort from the HOA to keep the paperwork up to date, so not all of them do it.
So, this is the website we can use to check if the condo is FHA approved:
https://entp.hud.gov/idapp/html/condlook.cfm
2) Using an FHA Loan To Buy New Construction Condos:
Sometimes in a new construction situation, the builder will work with an in-house lender to issue the loans according to FHA guidelines (all requirements except the ownership percentage requirement will be met.) This way they can attract FHA buyers early in the sell-off of the units, even if most of them are still owned by the builder or haven’t been built & purchased yet.
Then, after enough of the condos in the new development are sold to owners (70%), the lender will send the loans from the lender’s portfolio to the government agency that holds the FHA loans. The loans are now meeting ALL the FHA guidelines
3) Using an FHA Loan To Buy a “Regular” House or Existing Home:
When you’re buying a house directly from “just” an individual home owner, using an FHA loan is easy. Most home sellers will just take whatever type of buyer they can who will give them the most money. As an investor, I have sold homes to FHA buyers before because they paid the best price, I wasn’t as sensitive to what type of loan they would be using to buy the property.
So sellers can choose the buyer they want and there are no problems with FHA loans.
The only time using an FHA loan would likely spoil the deal is when home needs extensive repair, like a rehab property or “fixer upper” that might be purchased by a real estate investor.
If you would like to buy a fixer-upper property, the FHA offers a different Loan, the 203(k) Loan that is specifically for fix-up properties, that you might want to look at instead. We can help put you in touch with an investor-friendly lender to get into your first investment property if you want to go that direction instead.
Let me know if this is helpful as an overview, or if you have additional questions!
Emily
