FHA and USDA Buyers are NOT 2nd class citizens! Or are they?

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FHA and USDA Buyers are NOT 2nd class citizens! Or are they?

FHA Buyers, at least in my market, are normally placing the minimum amount down, 3.5%, and asking the Seller to pay 6% towards their closing costs. In a market where 87% of the sales are distressed properties, FHA Buyers, in the eyes of the Seller, are second class citizens.

It's not only difficult for FHA Buyers to find a property and get an offer accepted but....they pay more. That's right, the folks who can probably least afford it have to pay more to get a home.

Here are some stats I pulled today that will back up that statement.

During the period 1 October to 17 November 2009 there were 162 single family homes that sold in the Neighborhoods of Poinciana Villages. 30 of these were purchased using FHA financing.

***Check out this little chart:

	Beds	Baths	Sq Ft	List Price	Sold Price	Price/Sq Ft	LP/SP
FHA	3	2	1821	$76,280	$78,880	$43.73	104%
Others	3	2	1847	$70,267	$70,404	$38.63	101%
Difference	NA	NA	(26)	$ 6,013	$ 8,476	$ 5.10	3%

***Data pulled from the Mid_Florida Regional MLS on 11/17/2009 and is deemed to be reliable.

So what do you think about that? FHA Buyers are getting less house and paying 11% more. Even if you take out the 6% in closing costs assistance FHA Buyers are still paying 5% more....for less house.

Should FHA Buyers be treated like second class citizens? I don't think so. Maybe Sellers Lenders should have more incentive to help these folks get a home without having to pay more than others. OR...maybe Buyers need to save more money before getting into the housing market.

What say you?

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Bryant Tutas
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Posted by Bryant Tutas Broker/REALTOR(R) Tutas Towne Realty, Inc on 11/17/2009 03:49 PM

Comments (24)

FHA and USDA Mortgages in the Home Buying Channel

fha loans, usda rural housing

Originally posted at: Selling Poinciana One Property at a Time.: FHA and USDA Buyers are NOT 2nd class citizens! Or are they?

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This post has been included in Florida Real Estate News Osceola County, FL Real Estate News Kissimmee, FL Real Estate News Poinciana (Kissimmee, FL) Real Estate News

24 Comments on FHA and USDA Buyers are NOT 2nd class citizens! Or are they?

NOV

2009

Reserved for TLW

Unfortunately, in our market where there is a lot of competition, FHA buyers are behind the curve when others are putting 20% down. Sad but true. I don't know about paying more though.

I'm not sure this is necessary. Over the yeras, it has been routine practice to add the closing cost from the buyer to the offer.

I have never done that. If the owner has equity and I can find it, they pay the closing as incentive for the buyer to buy their house or we find another one. Inflating offers to pay closing also skews appraisals.

VA and FHA buyers should not pay more. Could it be that the buyer's agents and or listing agents are just adding the closing into the contract price????

I've seen listings with REMARKS, "add closing to price". No, no, no.

This is not a hard rule by the way. If the value is there, we reflect that in the offer with closing help.

Lenn, The problem they have, in my area, is they are competeing with cash buyers. A well priced REO may have a dozen or so offers on it the first day or two on the market. The lenders can be enticed to accept the deal if the net is high enough.

Until prices rise up to where they really should be, it will be hard for buyers that need financing to compete for deals. Once prices rise, the investors will leave. Seems like the real estate market is never "normal". It always seems to favor one side over the other.

Hun...

Less for more doesn't work in my little world :)

TLW...ROAR!

We have the same problem here in San Diego where the buyer is up against investors and all cash buyers. VA is even worse with the non-allowables clouding the waters even further. I have had many listing agents straight out tell me the reason our offer was not accepted was due to the fact is was a VA loan. Being in an extremely active military town, you would think the men and women fighting for our freedom (that we use to make bad decisions) they would have some advantage, but they for sure are looked upon as they have a third eye.

I do not think that we can get that level of data in California through our MLS. Very interesting.

Hi Bryant!
I hadn't seen it in black and white, but I have suspected as such. I think part of the problem is that cash and investment buyers are taking a good portion of the affordable properties, leaving the balance for FHA buyers. That means that FHA buyers can't take advantage of short sales and foreclosures. It is a sad state of affairs.

Hi BB!

Very interesting post, we notice the same thing here. I think they should definitely save a little more money before buying a home....if you have nothing to put down, how can you say you're going to be able to keep up with paying the mortgage if you lose your job 3 months down the road if you don't even have a reserve saved up? I think that's been a huge issue with all of the homes that have gone into foreclosure...people are buying that simply cannot afford to. It's time to plan, not just jump in.

Sincerely,

Kathleen

They pay more because they aren't as strong a buyer. FHA requires some minor closing costs to be paid by the seller regardless, and some repair requirements. For that inconvience sellers want a good deal to deal with it.

Otherwise if they want to get a better deal then they should get their 20% down and do regular conventional financing.

These stats are staggering. It makes finding a home for an FHA buyer very difficult. Just got to keep putting one foot in front of the other one.

Wow. I'm sorry to say that I never considered these possibilities. I knew that with all the REO's on the market, that alone would reduce the options for buyers who were using FHA mortgages. But having to pay more for a home that's seller owned? That just doesn't make sense. You'd think the sellers would be desperate to sell, and more open to FHA or USDA loans.

I guess "Cash is King" still rings true. Lenn brings up a good point. However appraisals I see always have seller concessions deducted from value. Concessions won't bump up appraised value on comps, but a consumer could theoretically pay more when comparing homes sold.

NOV

2009

Same thing over here in Tampa-Clearwater, cash is the preferred purchase method for REO's. Seller concessions are not the way to go on these distressed properties. Also finding some short sale approvals only allowing 3% seller concessions.

Perhaps the lack of FHA compliant homes is the real problem. In distressed properties most of the appliances seem to be a major obstacle.

Unfortunately the FHA buyers are at a disadvantage, one of the biggest is the uncertainty of meeting the appraisal with the sellers concessions. The higher risk normally means higher rates. Unfortunate, but that's the way it is.

Hi Bryant and all...

Your posts are always so informative, especially in light of the responses from so many experienced agents. Thanks again!!

BB,

You ask " so what do you think about that " ?

I think it is almost a crime. Not possible to build a home using todays building codes and standards given the cost of the lot as well for that price per square foot.

BB - Around here (SoCA), FHA/VA buyers are at the bottom of the rung for offers. Bank sellers will still take a lower cash offer over a higher FHA offer. I'm not talking just a couple of thousand lower, I've seen some properties sold to all cash investors for as much as 20k lower. So your claim that "the lenders can be enticed to accept the deal if the net is high enough" doesn't ring true here in Los Angeles & Ventura counties. JMHO

Bryant - That is a fascinating analysis. One thought (did not read all comments) - those who get seemingly "free" like closing costs, versus those who put up hard dollars- might not care as much about the end purchase price. It is similar to buying a car and only caring about the payments... Those cars sell for more, because the purchase is not price driven, it is payment-driven...

BB...

Or it could be that since FHA buyers put so little down, they are not negotiating as hard.

NOV

2009

While I believe it is important for my buyers (especially first timers) to save up as much as possible, the prices and rates are right and I too see a lot of people "jumping in". Hopefully there is some equity to be had with a market upswing... Here in Ct we aren't anywhere close to the percentage of distressed properties you guys have, and thant makes for a BIG difference.

NOV

2009

Um whoa, I never thought of this but I have seen the dispairity on the VA loan here via BPOs. I always thought "why". I should go pull some numbers and pay attention. Maybe make a market report, LOL!

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Bryant Tutas Broker/REALTOR(R) Tutas Towne Realty, Inc

Poinciana, FL

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