Monday, December 30, 2019 / by Ariadne Gold
Most home buyers know that their price range will affect the condition of the home that they will be able to buy, but did you know that the type of loan that you have will affect it as well?
The three main loan types are conventional, FHA, and VA.
Conventional loans generally require a larger down payment and higher credit score. They are insured by the individual lender.
FHA is a great option for those with lower credit (down to 580), and a lower down payment (FHA down is generally 3 or 3.5%, with some zero down programs available), and if the home is going to be your primary residence. FHA loans are insured by the Federal Housing Administration.
VA loans are available for veterans, and the minimum credit score will vary by lender. These loans do not require a down payment, but they do require a certificate of eligibility from the VA.
FHA and VA loans also have maximum loan amounts, which vary by area. Spokane’s 2020 FHA maximum is $331,760 for a single family home, and the VA maximum is $484,350.
Each loan type has different guidelines for the home’s condition, which will be noted by the appraiser. Conventional is generally the most lenient, so long as the home is in livable condition. Are you wondering why this is? It has to do with the level of risk to the lender, and also because these loans aren’t government backed. With a conventional loan, the buyer is putting a higher amount down, which lessens the lenders risk. It also shows that the buyer has more disposable income, so if a big expense comes up (such as a roof replacement) they aren’t worried about it being foreclosed on.
Since FHA loans are government insured, they’re stricter on home condition and the appraiser inspects the property (although this is only a health and safety inspection, not a full home inspection.) The roof cannot have less than five years of life left, there can’t be any health or safety concerns (such as missing handrails), and there cannot be any peeling paint on homes built before 1978 (due to lead paint concerns). VA has similar guidelines.
So, what does this mean for you as a buyer? If you are getting an FHA or VA loan, it means you need to be aware of the condition of the home that you want to buy. Most list agents will list whether the home is available for these types of loans, but there still may be some things that an appraiser would require to be fixed before they approve the sale. If you (or your Realtor) notice any of these items, make sure you include a repair addendum in the offer or request it after the inspection! If the appraiser finds issues and has to come back out to re-inspect, they will charge a re-inspection fee. It also means that you may not be able to purchase some homes that aren’t in good condition.
As always, I’m here to help with any questions. (509) 217-7172