If you plan on selling and are trying to decide where to spend money updating your home, it’s always a good idea to understand your potential buyer.
Roughly half of today’s homebuyers use an FHA mortgage. There are many reasons for this including lower down payment requirements (3.5%), less restrictive credit requirements (often as low as a 620 FICO score), and the ability to borrow more money based on a buyer’s debt and income.
With an FHA mortgage a buyer can borrow 96.5% of the purchase price and ask a seller to contribute up to 6% of the sales price in concessions such as closing cost. This means a buyer could purchase a $400,000 home with only $14,000 (3.5%) down payment if the seller were willing to pay closing costs.
In Richmond, Virginia the maximum loan amount allowed for an FHA mortgage is $535,900. Richmond’s average sales price in 2012 for a single family home was $221,490 and 95% of home sales were below the $600,000. If you will be selling your home, odds are your buyer will get an FHA mortgage.
The typical FHA buyer has the needed 3.5% down payment and required reserves and that’s all. They cannot afford a home needing a great deal of upgrades/repairs. Buyers look for homes that have had updates/repairs to items such as the roof, HVAC system, and items that would impact an appraisal such as exterior wood rot. If your home has not been updated, buyers will look elsewhere or move on to higher priced new construction where there will be no upgrades or repairs needed for years.
If you plan on selling, address major issues such as a roof with less than 3 years of life or an HVAC system that is older than 15 years. A roof with 7 years left or a 10 year old HVAC system may not need replacing, but they still will impact a sale because the next buyer is the one who will have to go out of pocket for those repairs. Sellers who object to making these repairs because of cost should not be surprised when buyers won’t buy their home for the same reason. The buyers might be able to afford more home but they won’t be able to come up with the cash for repairs after closing.
If your home is not updated enough to attract FHA buyers ask yourself who is left to buy your home?