July 21, 2023
Will your FHA home loan be approved or denied? There are several reasons why your loan application could be turned down, and some of those reasons have more to do with the property than with the borrower’s credit history or FICO scores.
And in some cases, getting turned down for a mortgage is the borrower’s fault due to credit history or FICO score issues.
But what about when the borrower’s credit, employment, and other qualifying factors are acceptable to the lender, but the home loan application is turned down anyway?
For some, it could be a question of the property’s condition, location, or type.
Location Counts
Some don’t realize at first that to be approved for an FHA residential home loan, the property cannot be situated within a specific range of high-voltage lines, gas pipelines, certain known major disaster zones, and/or coastal barrier areas?
A home may not qualify for a loan if it’s too close to a gas station, airport, or similar commercial operations. For some borrowers, zoning might become an issue, but this is a local law problem and not an area addressed by FHA loan rules.
Size Matters
Large properties (five units or more), investment properties, and homes intended for commercial operations like bed-and-breakfasts can’t be approved for FHA mortgages.
That said, borrowers may use an FHA mortgage to buy a home up to four units large. Occupancy is required in at least one of the living units, so if you don’t plan on occupying the home, don’t apply for an FHA mortgage to purchase the property.
Intent Matters
FHA loans can’t be approved for purchasing unimproved land with no plans to build a residence.
FHA loans cannot be used to purchase excess land that isn’t needed to purchase and occupy a single-family home, such as when a borrower wants to buy a farm home. Only the land necessary for using the home as a residence is approved for purchase with an FHA mortgage.
Condition Of The Property
One of the factors in FHA home loan approval is whether the home has enough “remaining economic life so that the borrower isn’t stuck with a property they cannot sell at the end of the loan.
If the house doesn’t have enough remaining economic life to last for the full FHA loan term, it may not be approved for an FHA purchase loan unless the borrower is considering an FHA 203(k) rehab loan option to repair the property at purchase time.
