FHA Pros and Cons for Sellers

Mary Gormandy White
FHA Loan
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If you're planning to put your home on the market, it's important to educate yourself about FHA pros and cons for sellers. By taking the time to learn about both the positives and negatives associated with this type of mortgage loan, you'll be able to make an informed decision about offers that might come in from buyers who will be seeking funding through an FHA loan program.

Understanding FHA Pros and Cons for Sellers

FHA mortgages are home loans that are insured by the Federal Housing Administration.

Advantages

From the seller's perspective, the primary advantage of FHA loans lies with the fact that being willing to accept an offer from a buyer who plans to seek this type of financing leads to a larger pool of potential buyers for your property.

Assuming that you are not trying to sell a high-end property that is beyond the scope of FHA loan limits, there's a good chance that you'll find a qualified buyer faster if you are open to dealing with the paperwork and inspection challenges posted by FHA financing. If you aren't open to FHA financing, buyers who lack the ability to qualify for a traditional mortgage loan will not be able to purchase the property you want to sell.

It's a fact that many people who are not able to afford or qualify for traditional mortgage loans are often able to purchase homes with the assistance of an FHA loan program. There are several reasons for this, including the fact that the down payment requirement for FHA loans is lower than for traditional mortgages. In many cases, it's also easier for people to meet the criteria for FHA loan approval than for other types of mortgage loans. For example, FHA borrowers can use money that has been given or loaned to them as a down payment rather than having to prove that they have been able to save up the funds on their own.

Drawbacks

In the past, FHA loans were associated with paperwork and inspection hassles. However, even though many people still have the perception that this type of financing can be problematic, that is not the case any longer. While home inspections are certainly recommended, there is no longer an inspection requirement for FHA mortgages. An appraisal is required, but that is the case with all mortgage loans. After all, lenders have to be certain that the property being financed has a value sufficient to cover the outstanding loan amount if the purchaser is not able to make his or her financial obligations.

The only thing that sellers might view as a negative aspect when selling a property to someone who is financing their purchase with an FHA loan is the fact that sellers are required to pay the tax service fee. This fee goes to the company that services the loan and covers the administrative costs associated with setting up and making tax and insurance payments from the buyer's escrow account. This fee is typically less than $100, so is not likely to have a significant impact on the loan proceeds or related expenses.

Deciding About FHA Loans

It is natural to wonder about FHA pros and cons for sellers when making decisions about the types of offers you are willing to entertain when placing a home on the market. Since the requirements for FHA mortgages are not as stringent as they have been in the past, many sellers reach the conclusion that the fact that more people are likely to be eligible to purchase their property if they are willing to accept FHA greatly outweighs the potential expense of being required to pay a minimal tax service fee.

FHA Pros and Cons for Sellers