Government-backed home loans, such as FHA, VA and USDA, are great options for eligible buyers. These loans offer low rates, low down payment options and can make it a bit easier for first-time buyers or buyers with credit issues. All that said, the rules on property condition can get tricky.
Because these loans offer low or no down payment options, these programs require the property meet more stringent condition requirements. The reason for the stricter condition requirements is to protect the lenders' interest in the property as collateral. Essentially, the lender needs the property to be in reasonably good condition so it can be sold, should the borrower default on the loan.
Knowing the requirements and guidelines of government backed loans is helpful prior to a home search, helping buyers quickly eliminate properties not eligible. As a seller, discussing the guidelines with your broker will help determine what repairs may be necessary prior to actively marketing the property. It will also help sellers determine their target markets and buyer pool.
With an FHA, VA or USDA loan, the appraiser determines whether the property inspection meets the Department of Housing and Urban Development 's minimum requirements for fire, life and safety.
The following provides a fairly comprehensive guideline on what to watch for on a prospective property to purchase and also repairs to be made prior to listing a property:
• Leaky or defective roofs and roofs with a life expectancy of less than three years
• Peeling paint, especially in homes built prior to 1978
• Loose handrails or steps
• Missing or inoperable appliances
• Major plumbing issues and leaks
• Exposed wiring and junction boxes
• Inoperable HVAC and heating systems
• Foundation or structural defects
• Evidence of standing water in crawl spaces or basements
• Rotting window sills, eaves and support columns
• No pressure relief valves or expansion tanks on water heaters
• Bedrooms that don't allow for egress
• Exterior doors that don't properly close and open
• Active and visible pest infestation
• Unpainted downspouts and broken rain gutters
• Leaning or broken fences
• Wood to earth contact
Other things to consider when looking for property when using a government-backed loan, are non-permitted additions or remodels. If a property has a non-permitted addition, or garage conversion as an example, the lender may require that the addition/conversion be brought up to code and permitted. This can get very expensive, very quickly. A seller may choose not to bring the property up to government-required standards; as such it's best to go into the property search with eyes wide open. Conversely, as a seller, these items should be disclosed to the listing broker in order to determine the target buyer. Knowledge is power, and when armed with a solid understanding of the loan programs in play, it can save time, money and potential heartache.