Homebuyers turn to FHA loans for a number of reasons. The down-payment requirements are lower than are requirements for conventional loans. In addition, FHA loans are easier to qualify for because there’s no minimum credit score requirement. A borrower whose credit score is too low to qualify for a streamlined approval process goes through a different process by which the lender assesses her creditworthiness manually. Although primary responsibility for following FHA guidelines falls with the buyer’s mortgage consultant, the buyer or his real estate agent must tailor the sales contract for FHA loan requirements.
Obtain a mortgage pre-approval to provide relative assurance of the buyer's ability to finance a purchase with an FHA loan and to find out how large a deposit she'll likely need and the amount of closing costs she'll need to finance.
Enter the down payment amount if your sales contract requires that you specify an amount. The down payment must equal at least 3.5 percent of the purchase price, although a buyer with credit issues might need to pay 10 percent down. Use the mortgage pre-approval for guidance.
Elect the mortgage contingency. If you can specify a loan type, enter "FHA."
Enter a loan amount for the mortgage contingency. Multiply the offer price, including seller concessions, by 96.5. The result is the amount the buyer needs to finance, after the 3.5 percent down payment.
Elect the FHA appraisal contingency that allows the buyer to cancel the sale if the home doesn't appraise for at least the purchase price. A low appraisal without this contingency leaves the buyer responsible for making up the difference between the appraised value and purchase price with additional cash.
Elect the contingencies for the inspections the buyer intends to order and those the FHA requires. The FHA requires most of the structural and system inspections. System inspections include well and septic, heating/cooling and electric, as well as wood-boring pest, or termite. The FHA generally does not require a water-quality inspection, but if the buyer elects that contingency the FHA will require that it be done.
Tips
Consult with the mortgage consultant for definitive information about current FHA guidelines and requirements.
Warnings
Be aware the seller assist reduces the seller's net from the sale. For example, if the buyer offers $100,000 for the home but asks for 6 percent seller's assist, the seller's net from the sale would only be $94,000. You'll need to increase your offer to compensate if your intention is to offer $100,000.
References
- North Carolina Real Estate Commission. "Questions and Answers on: Offer and Acceptance." Page 4. Accessed May 31, 2020.
- National Association of Exclusive Buyer Agents. "Complete Guide to Buying a House." Accessed May 31, 2020.
- Realtor.com. "What is Earnest Money and How Does It Work?" Accessed May 31, 2020.
- National Association of Exclusive Buyer Agents. "What Is the Mortgage Contingency Clause and Why Is It a Bad Idea to Waive It?" Accessed May 31, 2020.
- California Association of Realtors. "Contingencies and Cancellation." Accessed May 31, 2020.
- American Financing. "What is a Mortgage Contingency Agreement or Clause?" Accessed May 31, 2020.
Tips
- Consult with the mortgage consultant for definitive information about current FHA guidelines and requirements.
Warnings
- Be aware the seller assist reduces the seller's net from the sale. For example, if the buyer offers $100,000 for the home but asks for 6 percent seller's assist, the seller's net from the sale would only be $94,000. You'll need to increase your offer to compensate if your intention is to offer $100,000.
Writer Bio
Daria Kelly Uhlig began writing professionally for websites in 2008. She is a licensed real-estate agent who specializes in resort real estate rentals in Ocean City, Md. Her real estate, business and finance articles have appeared on a number of sites, including Motley Fool, The Nest and more. Uhlig holds an associate degree in communications from Centenary College.