In the home buying marketplace there are many different types of mortgage products available to consumers. The most popular in recent years is the FHA mortgage. The FHA mortgage allows a borrower to put down 3.5% towards purchasing a home. This is extremely prevalent in today’s mortgage climate because a conventional mortgage requires 20% down in order to purchase a home. The average sale price for a home in the United States last year was $198,000. If a home buyer went with a conventional loan they would need to put down $39,600 plus closing costs. If a home buyer goes with an FHA loan they will have to put down $6,930 plus closing costs. This is why home sellers need to be prepared for an FHA buyer and FHA home appraisal.
FHA Home Appraisal Guidelines
In a previous article entitled “Home Appraisal Tips for Seller”, I mentioned FHA Appraisals that resulted in required repairs. Those mandated repairs stay in the FHA Appraisal database for 1 year. Here is more clarification on the process. An FHA case number is generated for each FHA mortgage application, what most people do not know is that the number is actually attached to the property that is being sold. This makes getting a pre listing appraisal so important. In most scenarios, value is the biggest deal killer within an FHA purchase. If you list your house and have a contract offer from an FHA buyer and your house does not appraise then the appraised value stays with that property for six months, even if a different FHA buyer comes along. The second biggest deal killer is repairs. Repairs stay in the database for 1 year. Sellers not having an understanding of what the FHA requires an appraiser to report is as foolish as determining a listing price without getting the property pre-appraised.
Effects of Failing a FHA Home Appraisal
Whether a property under-appraises or has repair issues within an FHA appraisal, here is the unfortunate chain of events that could happen. If a property was listed in March and was appraised in June the homeowner will have to wait a minimum of 6 months due to FHA rules and most likely wait until the following March in order to sell the property at a higher price. This occurs because the real estate purchase “season” is between March and October. Most people don’t list their homes between November and February because of the holidays and if the home owner has children they do not want to move in the middle of the school year. This translates into a homeowner making 12 months of mortgage payments on a house they do not want to own. All of this can be avoided if home owners go against the way real estate has been sold for the last 50 years by getting a pre listing appraisal.
Good Buyers get pre-approved. Good Sellers get a pre-appraisal.