When you buy a property, it’s important to fully understand your mortgage loan options. When you sell a home, it’s equally important to understand the rules and regulations associated with your buyer’s loan. Let’s take a look at the three most popular types of mortgage loans and how each one impact buyers and sellers.
A conventional loan is defined as a mortgage loan that doesn’t require that you meet specific criteria to be eligible for financing. That said, borrowers still have to meet standard credit and income qualifications that come along with any loan application process.
There are no property restrictions that sellers need to be concerned about with conventional loans, including home condition. Prior to closing, the home will go through inspections and the price can be negotiated down based on the findings, but there are no rules for specific standards that must be met.
FHA loans are most commonly taken out by buyers who have limited incomes or insufficient funds to make a down payment. These loans are government insured and are issued through the Federal Housing Administration. To qualify for an FHA loan, the applicants income must be at or under a certain amount and that amount varies by state.
A huge benefit of FHA loans is they offer borrowers the option to pay a reduced down payment. Unlike the 10-30% buyers have to put down on a conventional loan, FHA loan holders only have to put down 3.5%. They also have more flexible approval rooms to help accom for lower credit scores.
On the seller side, most properties qualify to be sold to FHA loan holders, but there are a few restrictions that can disqualify a property. The FHA will disqualify homes if:
- The list price is too high to be affordable for purchasers in that area
- The home is deemed unsafe or hazardous to occupants
- The property resides in a complex that is not HUD approved (check here to see if yours makes the cut)
Insured by the Department of Veteran Affairs, VA loans are the best way to finance a home if the option is available to you. These loans are strictly for veterans of the armed forces and their spouses. One of the biggest benefits of the loan is that it doesn’t require a down payment.
This is the hardest loan for a property to qualify for because the VA has a long list standards and requirements that must be met. Essentially, the home must be move-in ready, a requirement that often disqualifies foreclosures and short sales. Your home may be disqualified if:
- If fails to meeting one or more of the VA’s Minimum Property Requirements
- There are any major structural, safety or sanitation issues with your home
- There are mold, termites or other major system issues
- Your property, if it’s not a standalone house, is not in a VA approved complex (check the list here)
If an issue is uncovered during an inspection, it can be possible to make repairs prior to sale to bring the home up to VA standards, but in some cases, it’s not worth the effort. This is particularly true if the home was built a long time ago and is not up to code or if you know there are major issues you can’t afford or don’t want to fix.
Now that you understand the three most popular types of mortgage loans and their impact on buyers and sellers, you can move forward in your real estate transaction with confidence.
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