Both FHA and conventional mortgages require the home to be in good enough condition to finance the property.
FHA is a lower down payment 3.5% although there is such a thing as a conventional mortgage with only 3% down. The main differences between the two:
- your DTI ratios for a conventional mortgage are lower
- the interest rate on a conventional mortgage will be higher if your score is below 680 (usually)
- mortgage insurance for conventional loans is higher if your score is below 680 and you have to go through a whole separate process to get PMI whereas mortgage insurance for FHA is automatically included if you qualify for the loan
The appraiser for both conventional and FHA mortgages looks at the condition of the property. However, the appraiser doing the appraisal inspection for an FHA type mortgage will have a much more detailed checklist. Also FHA has a new handbook out (see stickies) and the list of what the appraiser needs to check is very extensive. The rationale behind this list is to make sure that a borrower doesn't purchase a "money pit" type house and not have the funds to make the mortgage payment.
The roof is a critical component. Usually FHA wants at least 5 years remaining life for the roof. If you know that it needs replacement now you can either have the seller replace it (not likely with a short sale) or get 203k type financing where you borrow enough to replace the roof and do additional repairs after closing. Your husband would NOT be able to do the work. The bank wants a licensed roofing professional that is approved by the bank and 203k construction rep and a permit for roof replacement.
From what I have seen, you would run into this issue with a conventional loan too if the roof is leaking especially with a high LTV conventional loan.
Also have the LO run the figures for you between the two types of loans to compare interest rates and closing costs.
