Question:

“Can I offer on an “as-is” property with an FHA loan?”
-ANONYMOUS BUYER

Quick Answer:

Sure, but you are easy to outbid.

Great news! Your lender pre-approved you for an FHA loan with a surprisingly high limit. You don’t really know what FHA means, but you are excited to sign papers and lock down that charming fixer across town. Having been approved for well over asking, you feel confident.

Not so fast. The property is listed “as-is.”

“As-is” means the seller will not make any fixes or repairs.

Fine, you think. I’m handy. I’ll do the fixes myself.

You write an offer that is immediately accepted (Yay!) A few days later, your lender sends a HUD- approved appraiser to assess the value and condition of the home. This is where things can get complicated. If the HUD appraiser finds certain issues with the home, they will report these back to your lender. Your lender will inform you that all repairs must be made, or else they will not issue the loan.

But wait… if the seller won’t make repairs, what can be done? It’s up to you, the buyer, to either pay for the repairs or forfeit the deal. And if the home must close within a few weeks, you might run out of time and be out of luck.

A savvy seller will see this potential roadblock when they read “FHA” in your financing contingency. It’s likely they wouldn’t accept your offer in the first place.

FHA stands for Federal Housing Administration. An FHA loan is insured by the government. Basically, the FHA says, “Go ahead lender, loan these buyers some money. We will help you out if they suck at paying you back.” Because they are insuring the loan, they expect the condition of the home to be to a certain standard. Therefore, if any of the following are in poor shape, someone will have to repair the defects prior to the issuance of the loan:

  • Landscape must slope away from foundation (flood/moisture hazard)
  • Proper egress in all bedrooms (fire hazard)
  • Paint must not be peeling or chipped (lead-based paint hazard)
  • All stairs must have a handrail
  • Heating system must be effective
  • Roof must be in good shape, per visual inspection
  • Foundation must be in good shape, per visual inspection

“In most cases, flagged discrepancies can be resolved fairly easily — if the seller is willing to fix them.”

FHA HANDBOOK, 2019

Bottom Line:

Know the specifics of your financing options prior to making an offer. Work with lenders and agents who can communicate these intricacies to you.