If you happen to be selling your property in the near future, you may be wondering if you should potentially sell your property to someone acquiring an FHA loan as opposed to a conventional mortgage. If you are new to FHA loans, this might seem like an intimidating option that could potentially be more trouble than it’s worth.
To help you better understand the difference between FHA loans and conventional mortgages, we’d like to talk about this topic in greater detail below. So if you’d like to learn about these differences and more, please stick around to discover the truth of the matter.
What Is an FHA Loan?
The biggest benefit of an FHA loan is that it’s part of a government-backed program that makes it easier for people to buy a house if they do not have the expected 20% down payment to get a mortgage. In fact, this government backed program only requires the potential buyer to put down 3 ½% for their down payment.
If you are a lower credit buyer that’s having a difficult time qualifying for a conventional loan, this might be the best option. On the other hand, people with higher credit also regularly take out FHA loans for one reason or another. Ultimately, it’s up to the buyer to determine if an FHA loan is the right choice for them.
What Is a Conventional Mortgage?
A conventional mortgage is a loan offered on the open market. The government does not back a conventional mortgage whatsoever, but this type of loan will typically come from a bank or dedicated mortgage lender.
As a free-market loan, banks and mortgage lenders typically loan money to people that do not present a great credit risk. So, buyers with a lower credit score will find it more difficult to get a conventional mortgage when compared to those with a higher credit score that present a lower credit risk.
How Do the Differences between an FHA Loan and Conventional Mortgage Affect Property Sellers?
From a seller’s standpoint, you might not necessarily be thrilled by the rules and restrictions that the Federal Housing Administration has in place when it comes to someone possibly buying your property. Believe it or not, the FHA is going to send an appraiser to your home to look for certain issues that they’ll want corrected before they give the buyer a loan.
As an example, the FHA appraiser is going to look over your property with a fine tooth comb. If they appraise your real estate and see that paint is chipping, this is going to present a red flag and they’re going to ask you scrape away all of the chipping paint and repaint the affected areas. This is just one potential cause for concern that could potentially set the date of the sale back and require sellers to pay for repairs that they’d rather not have to make.
As you can see, there are clear differences between conventional mortgages and FHA loans. From a seller’s perspective, selling your property to someone acquiring FHA financing might be more time-consuming and potentially expensive if you need to make extensive repairs before the FHA approves the loan. So keep this in mind while selling your property.