As you're shopping for a mortgage, you may have heard that sellers do not like – and even try hard to avoid – FHA loans. That's partially true.
Sellers often avoid FHA loans because they have strict guidelines associated with them. Being government-insured loans, they have stringent requirements that can be hard to meet.
For example, if a home is appraised for less than the agreed-upon price, the seller is forced to reduce the selling price so that it matches the appraised price. Otherwise, there's no deal. With a conventional loan, on the other hand, if the appraised value is less than the agreed-upon price, the buyer can either negotiate with the seller to make up the difference or can find another way to come up with the difference.
The seller essentially has more options – they can sell at a price that's closer to what they want to get for the house. With an FHA loan, they either have to relist the home or sell at a lower price. Unfortunately, if they decide to list the home again, the appraisal has to stay with the property for 120 days, meaning it can be hard to resell to another buyer for the original price.
With FHA loans, appraisers also have to be more specific and targeted in their inspections. They must look for certain defects that could pose safety, health, security, or habitability concerns.
For example, the property has to have running water and working heating and cooling systems. There can't be any broken or malfunctioning windows or any large cracks in the concrete. All appliances, roofs, and floor coverings must have at least two years' worth of life left in them and safety handrails must be installed in all open staircases. Homes older than 1978 must have all chipped or peeling pain replaced (a lead concern).