Changes made late last year in the Federal Housing Administration handbook are making it "more costly and time consuming" for FHA borrowers. The handbook changes, according to Tom Salomone, President of the National Association of REALTORS® (NAR), are impeding the ability of "first-time homebuyers, low to moderate-income households and minorities" to buy a home.
What's the Problem with FHA Appraisals?
The impact of the new regulations, Salomone says, is to increase the granular details covered in an appraisal, adding a half hour to the procedure and raising the closing costs passed on to the buyer. One sticking point for the NAR is new FHA handbook language that appraisers must "operate all conveyed appliances and observe their performance," a change that goes well beyond requirements in the past.
Salomone said in a letter to the Principal Deputy Assistant Secretary for Housing that some appraisers, concerned with liabilities involved in their physically testing appliances, are opting out of FHA assignments. And that contributes to a shortage of appraisers willing to work, further impeding the approval process for homebuyers.
Inspections vs Appraisals
In its letter to HUD, NAR recommended that the government help end the confusion between an appraisal, required for the loan, and a voluntary inspection, which is done by/for the buyer. An appraisal, Salomone wrote, is a mechanical inspection of the operating ability of house systems. It's done to report whether the property meets HUD's Minimum Property Requirements (MPR) and Minimum Property Standards (MPS). An inspection, on the other hand, provides a detailed itemization of repair/upgrade needs that can impact the cost of the mortgage, let alone the buyer's interest in the property. Homeowners should not expect the procedures to overlap, he added.
There is a range of FHA loan options tailored to individual circumstances, including one that allows borrowers to roll home renovation/improvement costs into the mortgage. One way to determine whether an FHA loan makes sense right now is to use LendingTree's FHA Loan Calculator to estimate monthly payments based on home price, credit score and zip code.
Getting Help with an FHA Loan
LendingTree maintains a collection of how-to articles on FHA loan qualifications, updated regularly. HUD sponsors FHA-approved counselors to assist consumers in understanding the risks and requirements in getting a loan. The agencies are listed by state.
Requirements for an FHA-backed loan can include:
- A maximum debt-to-income ratio of 43 percent
- A minimum credit score of 580
- A down payment representing 3.5 to 10 percent of the home purchase price
Conforming mortgages may ultimately be less expensive, but FHA loans generally offer lower credit score requirements, easier qualifications, and a higher debt-to-income ratio. FHA applicants must document their income, take a mortgage only on their primary residence, and pass the scrutiny of the Credit Alert Interactive Verification Reporting System to ensure that they have no previous defaults on federal-backed loans. In working with a lender, be sure to ask about potential bottlenecks in the appraisal process and what can be done to keep things moving.