Certain Homes Can DISQUALIFY Your Mortgage Pre-Approval
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    When you are pre-approved for a mortgage, take some time to discuss your home preferences with your lender. This could prevent you from making a … Read More
    When you are pre-approved for a mortgage, take some time to discuss your home preferences with your lender. This could prevent you from making a big mistake in choosing the wrong kind of property. Read Less
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Many would be home buyers are under the impression that getting approved for a mortgage loan is the only step in the process.
 
However, it is quite possible that the property could disqualify the home loan as well. 
 
In addition to the type of property, all mortgages have guidelines covering conditions of the home that can disqualify the mortgage. This is why your lender will use a licensed appraiser to review the home and determine its value. It is also another example of the importance of a home inspection prior to purchase.
 
When you are pre-approved for a mortgage, take some time to discuss your home preferences with your lender. This could prevent you from making a big mistake in choosing the wrong kind of property.
 
Based on the type of mortgage, certain properties will either need to be altered or they will actually be declined.
 
Fannie Mae Will Not Approve all Properties
 
While Fannie Mae approves a ton of conventional loans each and every year, they also turn down quite a few as well. The following list represents the properties that will not be approved for a mortgage under Fannie Mae guidelines:
 
   ✔ Any property that cannot be accessed by a road
   ✔ Bed & Breakfast facility
   ✔ A farm, ranch, or any other agricultural type of property
   ✔ Vacant land
   ✔ Boarding homes
   ✔ Any home built on frame (these are typically referred to as manufactured homes or mobile homes)
 
In addition to the above types of homes, there are also certain conditions that will disqualify a home for a Fannie May loan.
 
Basically, any condition that has an impact on the soundness or safety or structural integrity of the home must be repaired BEFORE the loan is approved. Examples of these conditions could be:
 
   ✔ a leak in the roof
   ✔ any crack in the main foundation
   ✔ seepage of water
   ✔ electrical wiring or appliance that is not adequate
   ✔ inadequate plumbing
   ✔ roof shingles that are either cupped or curled
 
If these items are not repaired then the home will be disqualified and the mortgage will be declined.
 
**If the home is in need of repairs, be sure to check out Fannie Mae's HomeStyle Renovation Mortgage
 
Conditions that Disqualify a Home for a VA Mortgage
 
In a similar fashion, there are conditions that need to be fixed before a VA mortgage will be approved. Examples include:
 
   ✔ Evidence that the home is still settling:
   ✔ More than usual dampness
   ✔ Infestation of termites
   ✔ Defections in construction
   ✔ Any sign of decay in the structure
   ✔ Any type of leak in the roof
 
Lead based paint is also a major concern. Any home built before the year 1978 is assumed to contain lead based paint, at least on the exterior walls. If the paint contains lead, the VA guidelines have recommendations for how to repair or treat the affected areas. Without such treatment the home will be disqualified for the home loan.
 
VA will also turn down certain properties. The following list of properties and conditions are not accepted by VA mortgage guidelines:
 
   ✔ Any home constructed within a Special Flood Area
   ✔ Any home that is within an Airport Noise Area
   ✔ A property that has Any easement for high voltage lines, high pressure gas or liquid petroleum
   ✔ A property located within a Coastal Barrier Resources System
   ✔ Only condos within units that have been previously approved by the VA
   ✔ Vacant land
   ✔ Any type of property where the ownership is shared, also known as co-ops.
 
Conditions That will Disqualify a Home for a USDA Loan
 
Like the VA and Fannie Mae mortgages, USDA requires a home to be free of any issue that affects the soundness or structure in a negative way. Some examples of items that must be repaired prior to the loan approval include:
 
   ✔ Evidence that the home is still settling
   ✔ Proof of decay
   ✔ Infestation of termites
   ✔ Any significant roof leak
   ✔ Excess amount of dampness
   ✔ Defective method of construction
 
In addition to the items above, the USDA will not approve any property that has an in-ground pool. Furthermore, any property that has income producing components is not acceptable for a loan. An example of income producing components could be a factory or a convenience store.
 
Properties not Eligible for an FHA Loan
 
Like the other type of loans, the FHA guidelines require that any major problems affecting the home must be repaired prior to the loan approval. Problems such as leaks in the roof, structural damage, and insect infestation must be remedied before the loan can close.
 
**FHA also offers the FHA 203k Rehab mortgage which many of these repairs can added to the loan and repaired after closing.
 
FHA also has a list of properties that it will not approve under any circumstances.
 
The properties that FHA will not approve are:
 
   ✔ Any commercial property
   ✔ Hotel or Motel
   ✔ Tourist home
   ✔ Boarding home
   ✔ Sanitarium
   ✔ Sorority or fraternity house
   ✔ Private club
   ✔ Co-ops
 
Fannie Mae, FHA, VA and USDA have different rules, but their reason for making certain properties and conditions ineligible can be boiled down to one word; RISK. In their eyes, these situations create a risk that they are not willing to bear. 
 
Keep these things in mind as you preview homes and make a decision about your next property purchase.
 
Related Property Condition Resources:
Top Home Inspection Issues to Avoid by Bill Gassett
Common Home Inspection Defects by MC2 Home Inspections
Top 10 Red Flags To Look For When Buying A Home by Kyle Hiscock
Important Disclosure:
USDA: For all USDA mortgage loans, property and income restrictions apply.
VA: The VA mortgage program is available to eligible Veterans only.
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