FHA stands for the Federal Housing Administration, a government-sponsored insured loan program funded by regular banks. This means the government does not provide the money, but provides insurance for the loan.
The main target group is for first time home buyers looking to owner occupy. and it allows for 3.5 percent down payment on their loan with a loan amount maximum of $729,750. The maximum amount varies by county. There are additional fees involved. Two additional groups of borrowers covered by the FHA are people looking to refinance and those looking for small home improvement loans up to $5,000 normally for the purpose of upgrading to energy efficient water heaters, windows, or similar expenses.
But my purpose here is not to discuss the rules, regulations. and nuances of the FHA program. All of this information can be found on the FHA website: www.hud.gov. Also, because rules are constantly changing, it is important for buyers to work closely with their Realtor and bank or mortgage broker as they make their financial plans to buy a home or condo. Writing this article, I double checked my facts with Bob Gerson, vice president and senior loan officer at Pe Finance.
For the most part, a home in reasonably good condition is covered by the FHA program. There are nuances here, so be sure to find out if the home will be covered by the FHA before making an offer.
The majority of buyers I deal with are buying condos and a condo building must be approved by the FHA, so it is necessary for the building to be on the FHA approved list. Again you can search this list at www.hud.gov. There is so much new construction in San Francisco that buyers will be interested to know that some of these buildings are FHA approved.
Here is a short list (not all) of FHA approved buildings in San Francisco. You can check online if you know the name of a building that interests you.
- 3620 Market St.
- 465 10th St.,5800 3rd St.
- 862 De Haro St.
- 942-944 Treat St., Shipley Sq.
- 821 Folsom St., 1022-1024 Oak St.,17-19
- Jenning Court, 1315-1327, 7th Avenue.
Currently in San Francisco it is not as easy as one might hope to buy a condo with an FHA loan and 3.5 percent down. The rub here is that the FHA’s standards are quite high, and condo buildings must have an updated approval every two years When the real estate market was in the doldrums, sellers (at least some) were willing to do the paperwork necessary to keep a building’s certification current.
A few years back I thought I would do the paperwork to obtain an FHA approval for a building where I own a condo. This was a major project by itself, but to my surprise there were FHA NIMBY’s in my building. They absolutely did not want people in the building who they felt were on shaky financial ground and would not have a serious financial commitment to the building. I argued that with the price of a condo in San Francisco it usually takes years for a first time home buyer to save up a 20 percent down-payment. Not having 20 percent did not mean they were not responsible or committed to their condo. I saw these buyers as being grateful for the opportunity to own their own condo and as an asset to the building. In the end the FHA NIMBY’s were a stronger force than me. This building today is not FHA approved.
As little as a year ago a seller might have been willing to wait for a buyer to complete the FHA paperwork. This is rarely the case today when more than 40 percent of homes and condos are sold for cash.
The real issue for first-time homebuyers in San Francisco today is that this is an exceptionally strong seller’s market with multiple offers on many properties. It is easy to understand that when a seller has a choice between a buyer with cash (very short escrow) and buyers with 20 percent or more down-payment that the logical choice is to go for the cash.
FHA buyers San Francisco Style are left with few choices. New construction is one worth investigating, if only because developers have many condos to sell and there may be some that will not be as attractive to cash buyers or buyers with large down-payments. With low interest rates, owning is better than renting, and it is most important to remember this is not the only place you will ever live. You are first-time home buyers, and you get to live in San Francisco. You are very lucky!
Real estate is never boring! Happy house hunting!