What About Those Home Loan Myths?
June 19, 2024
Plenty of home loan myths exist, especially around FHA mortgages. The usual not-true clichés about how FHA loans are only for first-time buyers or economically disadvantaged borrowers aren’t the only ones. We correct some of the most common ones below.
Myths About Owning Land to Build a House On
Do you want to use an FHA mortgage to buy a modular or manufactured home? Or do you want to use an FHA One-Time Close construction loan to build a house?
Some assume they must own land to be approved for these FHA loan options, but this is not true. FHA loan rules allow financially qualified borrowers to purchase land with the loan to build a home or place a manufactured home. You do not have to own property currently.
A Related Myth
Directly related to the above, FHA loan rules say if you use an FHA mortgage to purchase a plot of land, there must be a plan to build. You cannot use an FHA mortgage to buy undeveloped land with no plans to build within a reasonable time frame after the loan closes.
Myths About FHA Loans for Mixed-Zoning Property
Some believe the FHA is responsible for determining whether a building with more than one zoning option is suitable for an FHA mortgage. FHA loan rules say non-residential use of a home purchased with an FHA mortgage can’t exceed a certain threshold, but zoning issues are left to the local governing bodies.
FHA loan guidelines typically don’t address local zoning law when approving a mortgage on a specific property, and FHA loan rules never override state or local regulations.
Myths About FHA Appraisals
Some borrowers don’t realize (at first) that FHA mortgages include consumer protections against the house appraised lower than the property's sale price. In such cases, borrowers might not want to purchase.
But if the borrower does not realize that FHA loans have a contingency clause built in for such cases (you will not give up your earnest money to walk away from the deal in such cases) this clause applies regardless of whether it’s found in the loan agreement.
That’s a fact worth repeating and emphasizing. FHA borrowers DO NOT have to buy a home that appraised lower than the sale price and will NOT lose earnest money by refusing to do so.
Myths About Home Inspections
The usual rules apply. Never buy a house without having both an appraisal and an inspection. Some mistakenly assume that a government-backed home loan, like an FHA mortgage, gives them certain rights to recourse if the home is defective.
For the record, if you don’t have the house inspected and you find defects in the property later, you will have no assistance from the FHA to redress the issues. The FHA will not intervene on behalf of borrowers with complaints of this nature. Skip the inspection at your own risk.
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RELATED VIDEOS:
Keep Your Eyes on Your Loan Balance
Learn About FHA Loan Prepayments
Taking Out a Home Loan Makes You a Borrower
Myths About Owning Land to Build a House On
Do you want to use an FHA mortgage to buy a modular or manufactured home? Or do you want to use an FHA One-Time Close construction loan to build a house?
Some assume they must own land to be approved for these FHA loan options, but this is not true. FHA loan rules allow financially qualified borrowers to purchase land with the loan to build a home or place a manufactured home. You do not have to own property currently.
A Related Myth
Directly related to the above, FHA loan rules say if you use an FHA mortgage to purchase a plot of land, there must be a plan to build. You cannot use an FHA mortgage to buy undeveloped land with no plans to build within a reasonable time frame after the loan closes.
Myths About FHA Loans for Mixed-Zoning Property
Some believe the FHA is responsible for determining whether a building with more than one zoning option is suitable for an FHA mortgage. FHA loan rules say non-residential use of a home purchased with an FHA mortgage can’t exceed a certain threshold, but zoning issues are left to the local governing bodies.
FHA loan guidelines typically don’t address local zoning law when approving a mortgage on a specific property, and FHA loan rules never override state or local regulations.
Myths About FHA Appraisals
Some borrowers don’t realize (at first) that FHA mortgages include consumer protections against the house appraised lower than the property's sale price. In such cases, borrowers might not want to purchase.
But if the borrower does not realize that FHA loans have a contingency clause built in for such cases (you will not give up your earnest money to walk away from the deal in such cases) this clause applies regardless of whether it’s found in the loan agreement.
That’s a fact worth repeating and emphasizing. FHA borrowers DO NOT have to buy a home that appraised lower than the sale price and will NOT lose earnest money by refusing to do so.
Myths About Home Inspections
The usual rules apply. Never buy a house without having both an appraisal and an inspection. Some mistakenly assume that a government-backed home loan, like an FHA mortgage, gives them certain rights to recourse if the home is defective.
For the record, if you don’t have the house inspected and you find defects in the property later, you will have no assistance from the FHA to redress the issues. The FHA will not intervene on behalf of borrowers with complaints of this nature. Skip the inspection at your own risk.
------------------------------
RELATED VIDEOS:
Keep Your Eyes on Your Loan Balance
Learn About FHA Loan Prepayments
Taking Out a Home Loan Makes You a Borrower
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