June 5, 2024
Interested in buying an old house? A fixer-upper? Does the house you fell in love with need extensive repairs to make it worth owning? FHA loans include options for older homes and fixer-uppers. We cover some key points below.
FHA Loan Options Are More Flexible Than You Might Think
There’s no single FHA mortgage option. You can’t use one loan to buy any property type that is allowed. There are just too many different options and needs that must be taken into account in the housing market.
Want to build a home from the ground up? There’s an One-Time Close FHA construction loan for that.
Want to buy an old property and rework it into a newly renovated home? There are FHA loan options for that choice, too.
If you find an older home you want to buy with an FHA mortgage and its low 3.5% down payment option, some might assume it must be in full compliance with state and local building codes when the appraisal is done.
But there are FHA loan options that can work around the fixer-upper nature of a given home.
Choosing The Right Home Loan For Your Specific Needs
The FHA 203(k) rehabilitation loan is intended specifically to allow borrowers to buy or refinance a fixer-upper home to renovate. This includes older houses.
Once the renovation work finishes, the home must meet FHA minimum standards and local building code. The appraisal process for fixer-uppers includes a provision that the home’s value is established after the improvements, not before, as with FHA 203(b) purchase loans.
FHA 203(b) loans to buy an existing home require that the house pass the appraisal as-is or be repaired to bring it into compliance. If the corrections are too extensive, the loan may be denied. That’s where the FHA rehab loan comes in as an alternative.
Do FHA Loans Feature Age Limits On Older Homes?
FHA loan rules require manufactured housing to be no older than June 15, 1976. Manufactured homes with dates older than that cannot be approved for an FHA mortgage.
However, that is not an applicable rule for purchasing a suburban home with an FHA mortgage.
An existing “stick-built” home, such as a house, condo, or similar option, does not have an age requirement like an FHA mobile home loan. The condition of the property is the deciding factor, not the year the home was built.
FHA Mortgage Options For Older Homes
If the house you really want needs major fixes and you still choose to make an offer it makes sense to avoid wasting time applying for an FHA 203(b) purchase loan.
The lender will require the home to pass the initial appraisal or be repaired to bring it up to standards. But if the renovation work is too extensive, you may need to ask the lender for the FHA 203(k) rehab loan option.
If you want to buy a fixer-upper, keep in mind that in some parts of the country, supply chain issues and permit processing times may affect the timeline of your project.
Be sure you know the issues in your housing market in the planning stages of your loan so you can have a realistic timeline for your home ownership journey.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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