There are several types of loans available to would-be homeowners, depending on their circumstances and if they qualify. A few common loan types are conventional loans, USDA loans, FHA loans and VA loans. Each type of loan offers advantages, although it can be argued that some offer more than others. Depending on the type of loan you obtain, certain requirements may be in place, and I’d like to clarify some of those here.
VA loans are arguably one of the best loan types but are reserved for veterans, so many people do not qualify. VA loans also carry some of the most strict requirements for a home’s condition prior to the sale. In our area, VA lenders typically require a pest inspection and prohibit the buyer from paying for it. This is unique because the buyer pays for a pest inspection (if they have one) with other loan types. If a house has a private water supply, the VA lender often requires a water analysis as well and may require additional inspections for rural properties. VA requirements are generally more stringent than other loans, but they are in place to protect the veteran buying the home.
FHA loans are commonly used by first-time home buyers because they can be obtained with a fairly low credit score and a low down payment. Longtime homeowners typically have equity and (hopefully) savings, so the common appeals of FHA loans are not as appealing as they are to younger people who are in need of more financial leeway. FHA loans have certain requirements, especially regarding a home’s health, safety and structural integrity, and the lender may require improvements to be made before granting the loan. Again, this is to ensure the well-being of the client.
Like VA and FHA loans, USDA loans have some fairly strict requirements pertaining to health, safety and structural integrity. All three of these loan types are backed by the government and carry additional requirements beyond a standard conventional loan.
When an appraiser performs an appraisal for a house being purchased with a conventional loan, he or she is simply assessing the value of the property. When a government backed loan is in play, the appraiser is required to be HUD approved and must inspect for additional requirements like those already mentioned. This, of course, can result in repairs/improvements having to be made, which is something buyers and sellers should expect and plan for.
While the requirements for each loan type are generally well established, lenders will sometimes be a little more strict or more lenient. For example, some VA lenders prohibit the buyer from paying for the pest inspection, period, while others will allow the buyer to pay for it upfront and be reimbursed later. If you’ve made the wise decision of working with a reputable realtor, he or she can help in communicating what your particular lender is or isn’t requiring in your unique case.
Because of minor variations between lenders and the fact that home inspectors are not mortgage lenders or appraisers, inspectors like myself are not in a position to predict or comment on what improvements the lender may require. Occasionally, realtors ask me what needs to be done to satisfy the lender based on the home inspection, knowing that I will have a good idea. And while I can generally predict the answer to that question with good accuracy, it is not appropriate to provide a concrete answer to that question.
If you’re planning to purchase a home, take time to research the different types of loans available to you, the lenders offering them, and the requirements of each. If you qualify for a government backed loan, expect to have a few more “hiccups” along the way, but recognize that the loan requirements are ultimately meant to protect you, not to cause you grief.
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