The FHA's Minimum Property Standards
Homebuyers intending to finance a home purchase with a Federal Housing Administration (FHA) loan may be surprised to learn that they won't be allowed to purchase a particular property because it doesn't meet FHA requirements.
Requiring that the property meet minimum standards protects the lender. When a homebuyer gets a mortgage, the property serves as collateral. In other words, if the borrower stops making the mortgage payments, the lender will eventually foreclose on the borrower and take possession of the house. The lender will then sell the house to get back as much of the money it lent as possible.
Minimum property standards mean that the property should be easier to sell and command a higher price if the lender has to foreclose. At the same time, a borrower is more likely to stay in a home that meets minimum standards, because he or she will not be burdened with expensive home repair bills from the start. Also, borrowers will try harder to make payments during difficult financial times if the home is a pleasant place to live.
To learn more about why the FHA's minimum property standards exist, what they are, and whether a problematic home can be remedied so that buyers can purchase the homes they want, read my Investopedia article, The FHA's Minimum Property Standards.