How Soon Can You Sell a House with an FHA Loan?

Consumers can sell a house with an FHA loan, but there may be certain requirements and restrictions that need to be considered.

What is an FHA loan?

When a mortgage loan is insured by the Federal Housing Administration (FHA), it is called an FHA loan. According to Zillow, FHA loans were first implemented in the 1930s as part of the government’s response to foreclosures and defaults.

FHA loans are unique because they allow individuals to own a home even when their credit score and financial situation might otherwise make the mortgage process impossible. When a loan is insured by the FHA, the government is providing lenders with a layer of safety should the borrower end up defaulting on their mortgage.

Who qualifies for an FHA loan?

According to Investopedia, the requirements for an FHA loan are generally much more borrower-friendly than those seen with conventional home loans.

The first difference lies with the credit score requirements. With a traditional mortgage, the minimum credit score required is around 620. With an FHA loan, the minimum credit score is much lower at 500.

The second largest difference is the required down payment. With a traditional mortgage, a down payment of as much as 20 percent is required. With an FHA loan, the down payment required will depend on a borrower’s credit score. If an FHA borrower has a credit score of 580 or more, they are only required to make a 3.5 percent down payment. For FHA borrowers with a credit score between 500 and 579, a down payment of 10 percent is required.

These two differences make qualifying for an FHA loan much easier than qualifying for a traditional mortgage.

How soon can I sell a house with an FHA loan?

Generally, the regulations governing FHA loans favor consumers who wish to sell their home. However, there are some situations that will require a closer look – especially if a homeowner wishes to sell their home to a buyer with an FHA loan or another type of government mortgage.

If an FHA borrower is selling their home to another FHA borrower, the property must be resold no earlier than 90 days after the seller’s initial date of acquisition. Although this may not be a problem for homeowners who purchase a property for occupancy, this may be an important factor for investors that are purchasing a property to flip and sell.

How does interest work when I sell a house with an FHA loan?

Based on recent regulations, FHA loans closed after January 2015 should not be subject to a full month of interest if the borrower pays off their loan on a day of the month other than the monthly due date.

Previous regulations allowed banks to charge a full month worth of interest, even if a borrower paid off their full balance before the due date. Lenders could and did take advantage of this freedom to penalize borrowers with extra interest, until the FHA stepped in and barred the practice.

If banks continue with this method of charging interest, even if a FHA loan was closed after January 2015, they may be violating federal regulations. In these cases, consumers may be able to take legal action against the lender.

Who Can Benefit From an FHA Mortgage Loan?

According to data collected from Realtor.com in December 2018, the typical millennial homebuyer is able to put down an average of 8.8 percent of their home’s price as a down payment. While financial experts often recommend putting down 20 percent as a down payment, for many younger people this is a financial impossibility.

Due to the ability to borrow up to 96.5 percent of a home’s value with an FHA loan, many young adults and first time home buyers are considering the benefits of FHA loans. Additionally, with these kinds of loans, borrowers are able to use financial gifts from family members, grants for down-payment assistance, or money from their savings to pay their down payment.

Additionally, under a new bill that passed the House in July 2019, first-time homebuyers who take out an FHA mortgage loan would be given a discount on their required mortgage insurance if they undergo homeownership counseling. This kind of counseling is aimed to help position first time buyers to be financially responsible homeowners.

While the FHA is currently able to provide borrowers who go through financial counseling with an insurance discount, this only applies in situations where the insurance premiums for borrowers are higher than 2.75 percent. Under the new bill, the discount would be provided regardless of what the rate is.

Join a Regions Bank FHA Mortgage Class Action Lawsuit Investigation

If you had an FHA mortgage loan with Regions Bank, and you sold, refinanced or paid off your mortgage early, you may have been charged a post-payment interest fee. If so, you may be owed money.

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This article is not legal advice. It is presented
for informational purposes only.