Have you ever wondered why a buyer is required to list the type of loan program they are planning on using on the purchase offer for a home? The reason this is required is that loan programs are all very different and each type can affect the seller of the house. An FHA loan is one type of loan program buyers commonly use, and there are several reasons that sellers might be hesitant to accept an offer from a buyer who is planning on using an FHA loan. Here are some of the reasons.
The down payment is based on the appraisal
The first issue that can occur with an FHA loan involves the appraisal. Many people choose FHA loans because they offer a way to buy a home with a small down payment. The lowest amount you can put down is 3.5% of the purchase price. If a buyer is planning on only putting this much down and the appraisal is too low, the bank may want more money than the 3.5% of the purchase price, primarily because the house will not be worth the amount the person is paying. If this occurs, the buyer may walk away from the deal, simply because they do not have any more money to use for a bigger down payment.
The down payment is also based on a person's credit score
Secondly, the amount a buyer needs for their down payment can be affected by the person's credit score. If the person's credit score changes during the process of buying the house, the bank might want more money down than just 3.5%. If the person does not have more money to put down, they might no longer qualify for the loan.
FHA loans require repairs
Another thing to understand about FHA loans is that they typically require that the seller complete any repairs the house needs. There is a long list of things the inspector must look for when inspecting a house that will be using an FHA loan. If the house does not meet the standards, the seller would have to fix the issues or the deal would fall through. For example, if the inspector found a loose railing, it would have to be fixed in order for the loan to go through.
As a buyer or seller, it is important to understand the effects an FHA loan can have on a deal. If you have any questions as a buyer or seller, talk to a real estate agent today.
For more information about finding single-family homes for sale in your area, contact a local real estate agent.