Are FHA loans ok for older homes?
May 19, 2009 6:24 PM   Subscribe

I'm selling my home. I have an offer on the table, but my realtor seems a little cautious about it because it's an FHA loan. Should I be concerned about accepting the offer since my home is older?

I have a more-or-less 80 year old home that I've done a decent amount of work on. The current offer is very solid, with the exception of FHA financing. My realtor is concerned about older homes having trouble meeting FHA approval these days. If you've recently sold/bought an older home with an FHA loan, I'd be particularly interested in hearing your advice.
posted by donnagirl to Work & Money (20 answers total) 4 users marked this as a favorite
Best answer: I just bought a 80-ish-year old home with an FHA loan with no problems passing the FHA appraisal, though I've heard it's fairly dependent on how strict the particular appraiser. When we were looking, our realtor was mostly concerned with us putting in offers on houses needing major repairs, such as an obvious need for new siding or a new roof.

I don't remember exactly what I read or heard that gave me this impression, but it definitely seems like FHA is trying to figure out how to handle more responsible lending (and therefore possibly more stringent appraisal requirements) in light of also trying to stimulate the economy by backing more loans.
posted by pril at 6:44 PM on May 19, 2009

If there are any issues, just fix them to meet the FHA requirements. Most of them will probably be minor things, like needing GFCI outlets in the bathrooms, or repairing any flaking paint. If you have more than three layers of roofing material, the inspectors won't like that, either.

The thing is, the buyer could ask you to fix these things even if he or she was not getting the loan through FHA! And in this market, ANY buyer with a good inspector is going to make some demands. There's no need to worry - just see what they come up with after the inspection.
posted by Ostara at 6:50 PM on May 19, 2009

Best answer: I did a lot of research on FHA loans- from what I know the house basically has to be up to code at the time of purchase, or any issues preventing that must be fixed before it will be approved.
If your house has been taken care of, which it sounds like it has, you should have no trouble. I'd say the biggest worry would normally be the electrical system since, depending on when it was installed, it may not have been sufficiently updated if it still works fine (grounded outlets, fuse box replaced with breakers, etc depending on your location).
posted by Kellydamnit at 6:56 PM on May 19, 2009

Response by poster: I replaced the electrical when I bought the house in 2001 - it was all knob and tube at the time, so I'm good there. I have a floor furnace; that's the biggest concern, I think. It works like a champ, I didn't replace it because I hate the noise of forced air heating, but I don't want to get stuck paying for a replacement now. It's up to code, but I'm concerned that "code" and "FHA standard" aren't always the same thing.

That said, this is all very reassuring advice, thank you!
posted by donnagirl at 7:40 PM on May 19, 2009

We bought our house with an FHA loan (but it was a while ago). The house was 35 years old when we bought it. Realtors don't seem to like them, but the way it was explained to us is that since the buyer puts less money down, and the FHA is guaranteeing the loan, they want to make sure that the buyers won't walk away from the loan because something is wrong with the house. They make sure that the big things don't need repair, like the roof and foundation, things that you would already be aware of if there were a problem and things that any buyer's inspector would be looking for. In addition, there are a some specific things that the FHA inspector will look for, like the GFCI outlets mentioned above. In our case, the seller had to spend about $400 to vent the hot water heater properly. This came out of the repair allowance that she had already specified when putting the house up for sale. The FHA inspector overlooked a lot that was wrong with the house, however. The furnace had a cracked heat exchanger, the subfloor had all kinds of problems and the electrical was inadequate. I got the idea that all the FHA cared about was that the house didn't burn down before we had a chance to refinance (FHA interest rates are higher than conventional loans).
posted by zinfandel at 7:41 PM on May 19, 2009

We're currently buying a home built in 1955 using an FHA loan. The only part that failed the initial appraisal was the fact that there had been a leak in the basement that caused a small amount of mold and buckled the floor (most of this happened after we looked at it but before the appraiser got there, since it had been winterized as it's a foreclosure). After the owning bank accepted our offer (which included them paying to fix the water damage), our home inspector found a lot of more minor problems (including some electrical and others) that the FHA appraiser didn't report as holding back the home sale.

I'm not sure why *your* realtor has a problem. Unless a failed FHA appraisal effects conventional mortgages, you should be able to put a successful appraisal in the contract they have to sign. Of course, this could be dependent on the DC area. I heard from our mortgage lender that he's doing a majority of the loans as FHA now. And no one I've talked to, realtor or lender, has expressed any reservations about FHA financing.
posted by skynxnex at 8:06 PM on May 19, 2009

You could just have the contract be contingent upon FHA financing, no? If they get the financing, everything's fine. If they don't, the worst thing that happens is that your house is on the market again, which it would be anyways if you turned this down.

If you're really concerned about the possibility of losing other offers if this one falls through, have them throw in a little earnest money, say a grand or two, which you keep if the FHA won't approve the loan. But given today's market, that seems a little presumptuous. Most sellers would be glad that anyone is interested in their home. Beggars, choosers, etc.
posted by valkyryn at 8:08 PM on May 19, 2009

Response by poster: Thank you all so much! This has given me a lot of hope. I think my realtor's concern centers on FHA loans being a slower process, and perhaps turning up things that wouldn't make a regular inspection. Also the house has barely been on the market (less than a week), so he may be hoping for better offers, I suppose. What I'm hearing from you tells me that there are some areas for concern - the roof, the electrical - but I'm confident those aren't concerns in my case. Perhaps by this time tomorrow I'll have a signed contract!
posted by donnagirl at 8:32 PM on May 19, 2009

I bought a house with an FHA loan last summer. I closed in less than 30 days. I had my own inspector, and the bank ordered an appraisal, but the appraiser didn't even come inside the house. I guess it really depends on the lender.
posted by rabbitrabbit at 8:37 PM on May 19, 2009

Best answer: One thing to remember is that, as far as I know, FHA appraisals for for the property, and not the buyer. And are good for 6 (I believe) months. So if, for whatever reason, it fails the appraisal, neither that buyer nor another one will be able to use FHA financing until you correct the problem. But this shouldn't stop you from taking an FHA offer if they're already approved.
posted by skynxnex at 8:47 PM on May 19, 2009

Best answer: You know, I should have also said that the house I bought last summer was built in 1960. Not 80, but no spring chicken either. The furnace is also from 1960, as was the electrical system (which we have since upgraded, but FHA had no problems with it despite the fact that the panel was of a type that is famous for failing horribly).
posted by rabbitrabbit at 10:49 PM on May 19, 2009

We sold our first home to a buyer that was getting an FHA loan. It was a terrible experience, costing us thousands of dollars to bring our house up to FHA standards. The FHA standards were far beyond local code requirements for our 50-year-old house. In the end, our sale did go through, but it closed a month late. Before accepting your offer, you might want to consult an inspector that specializes in FHA standards just to make sure you know what to expect.
posted by joe vrrr at 10:56 PM on May 19, 2009

I should have added that the FHA-requested repairs were related to the roof and the gutter system. At the time, both the buyer's inspector and several roofing companies said these repairs were completely unnecessary. Our sale was in 2003, so perhaps things have changed somewhat in the last 6 years.
posted by joe vrrr at 11:06 PM on May 19, 2009

Check the paint condition, as well. We're trying to sell a house and the FHA inspector complained about some small patches of peeling paint outside. We fixed them with no problem, but the FHA appraiser didn't show up until very late in the process (like two weeks before closing). The deal fell through for other reasons, but the comments from the FHA appraiser came out of nowhere)
posted by dforemsky at 4:34 AM on May 20, 2009

Anecdotally, your realtor isn't alone in his/her hesitations... we've put in two FHA-backed offers in the last month, and had them both rejected outright. There's a lot of anxiety about buyer finances falling through in general, I think (seems like half the properties in our area are accepting backup offers, which would be insane if a significant percentage of buyers weren't having trouble clearing their loans), and it's manifesting primarily as anxiety about traditionally-tougher lenders. There's a chance of your buyer's finances not clearing, but I don't think it's much higher with FHA loans than it is with traditional ones.
posted by Mayor West at 4:38 AM on May 20, 2009

valkyryn writes "You could just have the contract be contingent upon FHA financing, no? If they get the financing, everything's fine. If they don't, the worst thing that happens is that your house is on the market again, which it would be anyways if you turned this down. "

And your house is still on the market anyways until all conditions come off the offer. Realtors for the most part won't suggest a house with a conditional offer but if you are already interested they'll show it and they'll write an offer even if the sellers have already accepted a conditional offer. You don't see too much of that when the market is hot but in regions where average days on market is over 3-4 months it'll be more common.
posted by Mitheral at 9:50 AM on May 20, 2009

Our FHA loan (two years ago, so the market wasn't quite as crazy) didn't require major fixes, but the timing was a problem, as dforemsky suggests. We found out a week before closing that they wanted us to fix some peeling paint and have a section of retaining wall rebuilt. The fixes weren't too expensive but did delay closing by a week. Our house is from the mid-50s and has other more serious problems, but for all we could tell the fHA people never set foot inside, just did a drive-by and decided the peeling soffit paint was unattractive.
posted by Stacey at 5:26 PM on May 20, 2009

Response by poster: Just an update, I decided to go for it - the offer was extremely attractive other than the FHA, so I countered asking for a little later closing date and putting a short-ish time deadline on the inspection completions because my realtor had mysterious realtor insider info that those things wouldn't be an issue, so I'm expecting a positive result. Thanks again, AskMe!
posted by donnagirl at 6:02 PM on May 20, 2009

Response by poster: A month later, and that deal fell thru - but because the buyers flaked out, not because of financing. I have a new buyer, also using FHA loans, and all seems to be well, although the appraiser/FHA inspector has not been out yet, but the house did pass normal inspections with only minor flaws noted. I close July 21, I'll try to remember to update if anything arises between now and then.
posted by donnagirl at 5:46 PM on June 19, 2009

Response by poster: Last update - closing went off without a hitch, if a special FHA inspector came out, they didn't bother to ask to come into the house and didn't note any problems requiring attention. Yay for an easy-ish sale in a tough market time!
posted by donnagirl at 8:01 PM on August 26, 2009

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