FHA Loan Guidelines for Buying a Foreclosed Home

Are you thinking about buying a foreclosed home in Utah?

An FHA loan, guaranteed by the Federal Housing Administration, can be an affordable means of financing the purchase. Since properties facing foreclosure often sell for less than market value, you might get a great deal – and since FHA-backed mortgages are less risky for lenders, it’s fairly easy to qualify.

Having said that, understanding the FHA guidelines that apply for foreclosed homes is important. Here, the Intercap Lending team shares the information you need.

FHA loan Utah

Property Requirements for an FHA Loan

Like all Utah properties that qualify for FHA-backed mortgages, the foreclosed home you buy must meet certain standards. For this form of financing, the property must:

  • Be used as your primary residence for at least a year
  • Pass an appraisal by an FHA-approved agent
  • Meet the FHA’s criteria for safety, security and livability

Keep in mind, though, that the appraisal required by the FHA doesn’t ensure that the home has no shortcomings or flaws. The appraiser will only evaluate the specific points of interest listed on the Uniform Residential Appraisal Report, so you still need a home inspection for a thorough assessment of its condition. This is particularly important with a foreclosed home — the owner (likely a bank or mortgage lender) may have no direct knowledge of any defects and, therefore, isn’t required to provide property disclosures like other Utah home sellers.

Criteria for FHA Loan Approval

The FHA loan guidelines for buying a foreclosed home apply to more than just the property. As a borrower, you also need to meet certain conditions. Those include:

  • A credit score of at least 500 with a 10 percent down payment
  • A credit score of at least 580 with a 3.5 percent down payment
  • A debt-to-income ratio (DTI) of no more than 43 percent
  • A steady source of income and proof of employment

Also, with an FHA-backed mortgages a borrower has two mortgage insurance premiums – one fee that’s paid at closing, and an annual MIP for the life of the home loan. The upfront cost is equal to 1.75 percent of the total sum borrowed, but the annual fee varies depending on the loan-to-value ratio, the term and the size of the mortgage.

Talk to a Mortgage Expert Today

Do you have questions about the FHA loan guidelines or the process of buying a foreclosed home? The Intercap Lending team would be happy to provide you with answers, and we can explain how FHA-backed mortgages compare to other financing programs. Plus, as an independent mortgage broker, we can match you with a home loan that truly meets your needs.

For expert insight on buying a foreclosed home with an FHA loan, contact Intercap Lending in Orem, Utah, today.