Hi, Diana; thanks for reaching out. You not only can buy a foreclosure with an FHA loan, you can buy an FHA foreclosure with an FHA loan, in New York and every other state in the union.
That's because a primary function of the Federal Housing Administration (FHA) is to insure loans against default if they're made by approved lenders and meet the various guidelines for FHA financing.
FHA loans are intended to make it easier for homeowners to buy homes they otherwise may not qualify for; that's the power of that FHA guarantee.
But that guarantee also nets the FHA a steady inventory of foreclosures itself when buyers can't meet their obligations and have to give up their residential properties, i.e., lose their homes.
FHA loans can be used to buy multiple types of residential properties, in various states of repair or disrepair, and typically regardless of the lender who now owns them. But there's one major caveat: These are to be lived in by the borrower.
In other words, FHA loans are not intended to be investment properties. There are ways to keep within the rules and make money flipping them, but the FHA doesn't make it easy. Here's a look at how.
Most lenders of any size offer FHA loans. But keep in mind that the FHA doesn't set the rates, the lenders do, so do some shopping around.
Some more rules of the FHA road to a loan
Not only must a home purchased with an FHA-backed mortgage be used as a primary residence, it must be inspected to ensure it meets minimum standards of livability and it must be appraised by an FHA-approved appraiser. (Among the FHA's multiple loan types is one called a 203k rehabilitation loan. The minimum required down payment is 3.5%, and the lender finances both the repairs and the purchase.)
Otherwise, for home and garden-variety FHA loans, you'll need a down payment of at least 10% if your credit score is 580 or higher and 20% of the appraised value if your credit score is between 500 and 579.
You may find it hard to compete against investors who are often cash buyers or anyone else with a lot of down payment available. Those folks can make for a faster and easier sale and close.
Also, right now foreclosure moratoriums are in place for many types of government-backed loans, including FHA-backed mortgages, so that might dampen the supply for a while. But to help get you started, here's a link to a private company's site that lays out how to get an FHA loan and includes available FHA foreclosures by state, including New York.
And here's the link to the official FHA site maintained by its parent agency, the U.S. Department of Housing and Urban Development.
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