Did you know you can get a conventional loan for as little as 5% down?

I’ve talked before about how FHA loans are kinder and gentler in regard to updates that need to be done on the home before a buyer is allowed to purchase it with an FHA loan.  For the  most part, gone are the days when peeling paint and missing hand rails would waylay a pending mortgage.

But it’s not all lollipops and candy canes in the FHA loan business.  While there was once talk of a 1.5% down-payment option, FHA loans now require 3.5% down. (I think that’s a good thing) But today my gripe is about the flawed process of buying foreclosures. Columbus foreclosures are all around, in most every neighborhood and rumor has it that soon many more Columbus homes that have been foreclosed on will hit the market that have been held back.

With this lengthy supply of foreclosed Columbus homes out on the market and the instances of buyers Nationally using FHA up from 3% a short time ago to 25% or more, FHA, lenders, appraisers and HUD have got to come up with a better way. The streamlined 203k FHA product  is good but not everyone is eligible.

Nearly every foreclosed  Columbus Home that is for sale needs some kind of work done to it.  Nearly the entire population of would-be buyers for foreclosures are those first time buyers who don’t have extra cash laying around or lots of room to spare in their credit and debt ratios.  They can’t afford to fix up these houses up front—not to mention how uncomfortable I am about fixing up a home that doesn’t even belong to you yet.

If a home in Columbus has been through a foreclosure, chances are very good it’s been vacant for a year or more, that some of the plumbing or the air conditioning compressor may be missing, that the roof and gutters may need work, that the downspouts may be missing and that it’s going to need some money to fix it up.  For the most part, Buyers get this and they understand that the trade off for buying a home under market value is that they need to bring it up to date.

I don’t think FHA and their underwriters get it though.  Often the bank selling the property sells it as-is. That’s it. End of story. They don’t want to put the water in their name yet the FHA appraiser must have all utilities on at the time of the  appraisal.  When the appraiser says the roof is shot and that’s part of his appraisal, the underwriter says that in order to get the loan, the house needs a new roof.

The bank is selling it as-is, the buyer doesn’t have $5,000 laying around to put a new roof on a home that the bank still owns.  Everyone is at an impasse!  What happens now? How in the world is the country going to dispose of all these foreclosed properties, let alone Columbus. How can the economy move forward if we don’t have a system in place to address the inevitable problems that arise from an FHA appraisal? How do we get around this inevitable catch-22?

What are your thoughts?

Related: The Helping Families Save Their Homes Act of 2009

HUD Secretary says Columbus area Home Buyers don’t have to wait for the Eight Grand tax credit

Some Columbus Home Buyers Will See Fee Increases

Homes for Heroes – a Columbus Area First Time Home Buyer Program

New Housing Bill won’t do Much for Columbus Home Buyers or Sellers