Can You Use FHA Financing on a Bank Owned Property or a Foreclosure?

Not all foreclosures are eligible for FHA financing.

FHA financing is one of the more widely used home loans available. However, when it comes to foreclosures, FHA loans are not always the best way for consumers to finance a property, as not all foreclosures are eligible.

Property Condition

Property condition plays a large role in FHA financing eligibility for foreclosed homes. Properties in extremely poor condition might not qualify for a traditional FHA loan.

Types

There are two types of FHA loans used on eligible foreclosed homes. These two types are FHA 203B (traditional) and FHA 203K (rehabilitation).

203B Loans

FHA 203B loans are designed for properties with only cosmetic defects, that have running water and electricity. These properties cannot have mold damage or foundation damage.

203K Loans

FHA 203K loans roll the cost of repairs into the mortgage, which can make some properties that are not eligible for a traditional FHA 203B loan still able to receive FHA financing. These are complicated loans, and it can be a lengthy process to get one.

Ask About Eligibility

Speak to a real estate professional about foreclosure homes. They will have access to data that depicts the financing eligibility of all properties.

Misconceptions

Many home buyers believe that because a property was financed using an FHA loan that was foreclosed that FHA financing should still be applicable. FHA guidelines have strict standards on the habitability of a property, knocking many foreclosures outside of the guidelines.

References

• Federal Housing Administration: HUD Homes Information