Upcoming Foreclosures

FHA inspection concerns, and 10% earnest money?

I am looking into purchasing a foreclosure with an FHA loan but I am wondering if it may be declined due to a few missing shingles and the bathroom has no tiles or floor covering. Also is it normal for Fannie Mae to ask 10% earnest money on foreclosures? Thanks everybody!

Public Comments

1. On an FHA loan - the house MUST pass inspection. Floor covering is an absolute must in the entire house. The missing shingles may or may not be an issue - it is going to depend on how thorough the inspector is. Ultimately, if the house does not pass inspection you will not get the loan until all items are corrected PRIOR to the loan being ultimately approved. As for the 10% thing - that is high - way high actually. Usually cash deals ask for higher Earnest Money and even then that is getting on the high side.
2. FHA will reject it because of the flooring. The house has to be immediately livable, this one is not. The original listing should not have listed FHA under possible financing.
3. FHA does NOT require an inspection. Let me repeat that...FHA does NOT require an inspection. Neither does VA, and I see this posted on a daily basis on Yahoo Answers and it is one of the biggest myths in the lending industry. An appraisal is required, an appraisal IS NOT the same as an inspection. Appraisers are NOT licensed inspectors. An appraiser will only report defects apparent to the naked eye. Interior photos are REQUIRED on all foreclosure purchases. Fannie Mae nor FHA has ANY earnest money requirements. Floor covering is required under FHA guidelines as it affects the value of the home. Missing shingles would also need to be replaced. FHA or not, you'll be hard-pressed to get any lender to approve under any program without them. Typical earnest money for ANY real estate transaction should not exceed 1 to 2% of the purchase price.
4. There is no inspection other than the appraisal. The appraiser MUST make the appraisal subject to the repairs that affect the safety, soundness and security of the property. Like missing shingles, broken windows, bad plumbing, and this is a big one, peeling paint (lead based paint on home built prior to 1978). The appraiser must report the condition of the water system, no standing water under the house, if the drains are working, furnace is working and is required to check these items and must take photos under the home and in the attic, all interior rooms and all 4-sides of the home. The biggest problem is getting the power, water and gas turned on. If these items are not turned on then the appraiser can not do the appraisal inspection that is required by HUD and this is fact. Any item found to affect the soundness, safety or security of the home will have to be repaired prior to the closing of the home. The appraiser will have to go back out and check these items and fill out a HUD compliance inspection report. And I do not care what the HUD underwriter said above.