For homebuyers who are struggling to come up with a minimum 5% down payment that conventional mortgages require, an FHA-backed home loan can sometimes be the best route to take. The criteria is also not as strict as conventional mortgage programs, which means stellar credit isn’t always mandatory to be accepted.

However, in addition to homeowners having to be eligible for an FHA mortgage, the home they plan to purchase must also meet specific standards in order to get approval. In fact, property requirements are a critical component of the FHA program. While it may be the seller’s responsibility to bring a home up to par, sometimes the buyer may be on the hook to make the necessary updates depending on how the buyer’s purchase offer is drafted up.

Having said that, the minimum property standards that are required by the U.S. Department of Housing and Urban Development (HUD) are mainly concerned with a home’s safety, security, and structural soundness. The HUD also specifies certain conditions that properties must meet in order to successfully fulfill these requirements.

A bank-approved appraiser will take a look at the property’s condition, then submit the appraisal report to the lender before an FHA loan is approved. Generally speaking, cosmetic issues, minor flaws, and normal wear and tear are not looked at as long as they don’t have an impact on the property’s level of safety, security or structural soundness. That includes things like cracked window glass, missing handrails, worn out flooring, or debris, for instance.

Here are the basic requirements that properties must meet in order for an FHA home loan to be approved.

• Septic systems must operate efficiently. If they don’t, issues that could affect their operation, such as topography and soil permeability, will be looked at and will need to be remedied.

• No hazards should be present, such as close proximity to hazardous waste sites, gas wells, flammable items, high-voltage power lines, or transmission towers. In addition, the soil surrounding the property cannot be contaminated.

• No nuisances should be present, including noise due to heavy vehicular traffic or airplanes.

• Access to the property must be safe and satisfactory for pedestrians, regular vehicles, and emergency vehicles under any weather conditions.

• The structure cannot be compromised as a result of excess moisture, sub par construction, leakage, termite damage, and sloping settlement.

• Electrical boxes cannot have any exposed or damaged wires.

• Electricity must be available to operate lighting and any installed systems.

• Roofs must be in decent condition deemed not to require replacement any earlier than two years. In addition, they cannot have any more than three layers, and must be able to adequately keep moisture out.

• Attics and crawlspaces cannot have any excess moisture and must have some type of adequate ventilation.

• Water heaters must meet local building codes.

• Any presence of asbestos warrants additional attention from an asbestos professional.

• A working toilet, sink, and shower must be present.

• Kitchen appliances, including a functional stove, must be present.

• No major plumbing issues and leaks should exist.

• HVAC systems must be in proper working order.

• No rotting of the exterior, including walls and window sills, can be present.

• Exterior doors must properly open and close.

• There must be a sufficient water supply, including hot water, drinkable water, and an acceptable method to dispose of sewage.

• No active pest infestation may be present.

• The home must have adequate grading on all sides to allow for proper drainage.

• Bedrooms must have minimize-sized windows.

• Swimming pools cannot be empty nor have an inoperable pump.

• Fencing cannot be leaning or broken.

This list is by no means exhaustive. A more detailed list is outlined in the HUD Handbook 4150.2, chapter 3, which can be accessed online.

What Happens if the Property Does Not Meet FHA Requirements?

If you’re planning to buy a home that falls short of the FHA’s stringent requirements, start by working with the seller. Ask them if they can make any of the necessary repairs. If not, consider negotiating a lower purchase price to cover the costs associated with having to make these repairs yourself. Some issues will definitely be deal breakers, but others might be able to be dealt with before closing.

If all else fails, you may be stuck looking for another home if the list of repairs is just too lengthy to make the home worth your time, effort, and money. Or else, trying to get approved for a different mortgage product may be necessary in order to avoid having to ensure the subject property meets all the FHA’s requirements.

Of course, the lender will have a separate set of criteria that you will have to meet in order to get approved for a home loan. There is also the option of applying for an FHA 203(k) loan, which allows buyers to purchase homes that have major problems.

The Bottom Line

While an FHA mortgage might be easier to get approved for, it can actually make it tougher to close on a home based on various issues that may come with the property.  It’s important to be fully aware of what to expect when choosing an FHA loan, as it can restrict the properties that you might have on your short list.

Coming up with a sizeable down payment these days can be pretty tough, especially when you consider the soaring home prices that buyers have been facing lately. Conventional mortgages require at least 5% down, but a minimum of 20% is needed in order to avoid having to pay the extra costs associated with private mortgage insurance (PMI).

Saving up for a down payment is an absolute must, but you might still find yourself coming up short despite your best efforts. This is especially true for first-time homebuyers who don’t have equity in a previous home to put towards a new home purchase.

If you’ve got family members who are willing to help you out financially to pad your down payment, you’re lucky. But even then, you may be dealing with a whole new set of potential complications if the situation is not handled properly.

Before you graciously accept any monies that are extended to you for your down payment, there are a few things that you need to know first.

Down Payment Gift Donors Can’t Have Any Stake in the Transaction

Lenders usually won’t permit any down payment gifts from just anyone. An individual who might benefit from the transaction will not be allowed to contribute to the gift, such as a mortgage broker, sales agent, or seller. Down payment gifts typically need to come from a family member, including a parent, sibling, or grandparent.

In some cases, lenders may also allow cash gifts from a spouse, partner, or fiancé(e). There may even be times when the lender may consider allowing a cash gift for a down payment from a non-relative, but usually only for FHA loans, and only if the case is a strong and convincing one.

There Are Rules About How Much Can Be Gifted

If you’re putting down at least a 20% down payment towards your home purchase with a conventional home loan, all of the down payment can be in the form of a gift. If you’re putting down less 20%, a portion of that amount can be a gift, but the rest will have to come from your own funds. How this amount is divided between you and the gift giver will depend on the exact type of mortgage you are applying for.

If you’re taking out a mortgage that’s backed by the government – such as an FHA or VA home loan – the whole down payment can be a gift if your credit score is healthy. If it’s below 620, you will have to come up with a minimum of 3.5% down from your own personal funds. 

For FHA- and VA-backed home loans, you can only use gift money to put towards primary residences and second home purchases, whereas gift money for conventional loans can only be used towards the purchase of a primary residence.

There Must Be a Proper Paper Trail

Detailed documentation must accompany the cash gift being put towards your down payment. For starters, a letter must be submitted, which includes the following details:

• Date
• Borrower’s full name
• Gift donor’s full name and contact information
• Gift donor’s relationship to the borrower
• Amount of the cash gift
• Subject property address
• A note stating that the cash given is a gift and there is no expectation for it to be paid back at any time
• A note stating that the donor has no interest in the property’s sale
• Signatures of the borrower and gift donor

Other documentation will also likely be required by the lender, including a paper trail that documents the transfer of funds into an escrow account, or from the donor’s bank account into yours. Both you and the gift donor will have to submit recent bank statements.

Any documentation showing how the funds were transferred will also need to be submitted. At no time should the transfer take place without proper documentation. If the gift donor had taken the gift money from another account – be it a savings account, investment, or even from the sale of a stock – there needs to be a paper trail showing where the money came from. 

After the gift money is deposited into your account, you should get a receipt for the deposit to complete the paper trail. 

The Gift Donor May Have to Pay Taxes on the Gift

Cash gifts for down payments will be taxed, and the person who gifts you the down payment will be liable for paying these taxes. For this reason, it’s important that the gift giver is fully aware of this fact and understands the tax implications that will be imposed.

Gift donors can give as much as $14,000 to anyone without incurring the gift tax from the IRS. If the person giving you this cash gift is married and files a joint tax return, the couple can jointly gift as much as $28,000 to a family member. Based on the same principle, a married couple can offer a cash gift to a married couple for a total of $56,000.

There are times when an agreement is made to have the borrower pay the taxes on the gift. Everyone’s tax situation is a unique one. Before you graciously accept a cash gift to be put rewards your down payment, make sure you discuss your scenario with a tax professional.

The Bottom Line

If you are fortunate enough to be getting a cash gift for your down payment, don’t forget to document it in detail for your lender. In addition, be sure that all parties understand the tax implications of such a gift and that the money is not intended to be repaid at any time. Speak with your mortgage specialist or real estate agent to have any questions you may have answered before you accept any down payment gift.

I will unabashedly state that tacos are my favorite food.  Having just moved here from Austin, I’ll admit that I’ve been skeptical about the taco scene here in Chicago. However, I’ve been assured by native Chicagoans that good tacos do exist in the city and so my search for my favorite Chicago taco has begun. This week took me to Broken English Taco Pub in Old Town. The atmosphere is delightful, with brightly colored murals lining the walls, twinkling Christmas lights, and plush red chairs. The menu is relatively small, but packed with flavorful options. After consulting with our waitress on the size of the tacos, we decided to try a Family Style tray (6 tacos for $20). This gave us the opportunity to try a variety of tacos. My three picks were the Fried Chicken, Chorizo con Huevos, and Pork Belly Al Pastor. Each taco was served on a small double corn tortilla and came piled high with toppings. The Fried Chicken was delicious, the crunchy skin of the chicken perfectly complimented by a smoky cabbage slaw and creamy ghost pepper mayo. My second favorite was the Pork Belly. The pork was cooked perfectly and the sweet pineapple was mouthwatering. I was very tempted to order the Queso Fundido, a blend of melted cheeses with chorizo, sautéed onion, poblano peppers, and toasted pepitas. Unfortunately, after 3 tacos, I was much too full. But don’t worry, Broken English, I’ll be back for queso soon.

Broken English has great weekly specials, including Taco Tuesday: $2 tacos until 7 pm. Tuesdays through Fridays, from 5 pm to 7 pm, stop in for $3 Pacificos draft and bottles, $3 tequila shots, and $10 bottomless sangria. Broken English is located at 1400 N Wells St. They also have a location in the Loop, located at 75 E Lake St. Hours are Tuesday through Thursday from 5 pm-1230 am, Fridays from 5 pm- 1 am, Saturdays from 12 pm- 2 am, and Sundays from 12 pm- 10 pm.

Buying a home is a huge event. In fact, it’s likely the most money you’ll ever spend in one single purchase. This is definitely not the kind of transaction that you want to regret after you’ve locked into a deal. It’s not buying a sweater – you can’t just return it after you’ve bought it.

Unfortunately, there are times when buyers almost immediately regret the home purchase they made, known in the real estate industry and retail realm alike as the dreaded “buyer’s remorse.” Under no circumstances do you want to be a victim of this situation, which is why you need to take every facet of the home buying process into consideration before you commit yourself.

Here are 6 common causes of buyer’s remorse that you want to make sure you steer clear of.

1. Spending Too Much

By far the most significant form of regret is spending too much money on a home purchase. The last thing you want is to wind up “house poor,” whereby just about every dollar you earn needs to be put towards your home.

Just because you fall in love with a certain house, don’t let that cloud your better judgment. This is especially true if you ever find yourself in a bidding war with other buyers who are fighting just as hard to get their hands on the same home.

Bidding wars typically result in a purchase price that’s well over the asking price, which is fine as long as that dollar amount falls in line with the actual market value of the property. However, such heated and emotional transactions can often lead to overpaying for a home if your heart and your mind are out of sync.

Get pre-approved for a mortgage, and write down the absolute limit of what you are willing – and able – to spend on a home purchase, and make sure you stick to that number at all costs.

2. Buying a Home That’s Too Big or Small

Considering the magnitude of such a purchase, it’s vital that you write down every detail that you want and need out of your home, including its size. Perhaps you have a growing family that you need extra space to easily and comfortably allow for such growth. In that case, make sure the home in question has ample square footage so you’re not fighting for space.

On the other hand, you might be an empty nester or a single professional without the need for too much space. If so, there’s no need for a large home with a lot of wasted space. Not only will you be spending more on utilities to keep it operational, you’ll also be adding a lot more maintenance to your list of chores.

Be sure to seriously consider the amount of space you require, and only look at homes that match these details.

3. Not Getting to Know the Location Well Enough

Everyone has their own tastes and needs when it comes to where they want to reside. Maybe you want to live near the city, or perhaps you’d rather stick to the suburbs. Whatever the location you choose, make sure you’ve researched it in depth so that you’re happy and satisfied once you’ve moved in.

Consider things such as traffic noise, crime rate, school ratings, proximity to public transit, type of neighbors, and local amenities. Gather up as much information as you can before deciding on a certain neighborhood to call home. Visit the property both on weekdays and weekends, and at different times of the day to get a well-rounded scope of what the location will be like to live in. There’s no sense in looking at certain homes in the area if the actual location is not what you want it to be.

4. Not Factoring in Extra Ongoing Expenses

There’s a lot more that goes into paying for a home than just the monthly mortgage. There’s a host of other ongoing expenses that you’ll be responsible for covering to operate your home, including homeowner’s insurance, property taxes, utility bills, landscaping maintenance, closing costs, commuting to and from work, and so forth. Like the purchase price of the home, unpleasant financial surprises are the crux of buyer’s remorse. Aside from monthly mortgage payments, unexpected costs are usually the culprit of these surprises, and can really add up quickly.

5. Favoring Trends Over What You Really Need

It’s easy to get caught up in the latest trends in home design, but this can easily lead to regret after the fact. Whether it’s butcher block counters in the kitchen or stand-up showers with no bathtub, you might grow tired of certain fads shortly after you move in, especially if styles and trends change. Instead, you might want to stick to classic features and traits that have proven to stand the test of time. 

The Bottom Line

Your best line of defense when it comes to avoiding buyer’s regret is to go into the process well prepared. The process of buying a home is not one to be rushed and should be carried out with careful consideration. There’s nothing wrong with taking your time to determine if every aspect of the home and the neighborhood it’s located in is right for you. Be aware of the common sources of buyer’s remorse and do your best to avoid them.