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Why do some realtors make it tough on BUYERS??? Just stick to real estate !!!

Tough Love

(this is not about all realtors, just a few, and it's those that will hurt both the buyer and seller)

You would think with a tough real estate market, that realtors would want to be on top of their game, both for sellers and buyers. I think some realtors still live in the dark ages and this can hurt either the seller or the buyer.

I know many realtors and loan officers are passionate in what they do, but being one-sided, doesn't make it right. Can we call it tough love, seeming to be harsh in our thoughts or stern in our advice, only wanting to help that client in the long run?

Just the other day I received a note in my in box on Facebook from a loan officer out in California. He is a loan officer who actually told me that he has been following my blogs for a while now. Here is what he wrote.....

My client (and also a high school buddy of mine) has employed a Realtor who after a month of working diligently for him, has begun pointing him in the direction of a conventional loan.

He would have to save up for another month (or more) in order to come up withe extra 1.5 per cent down.

What is my best defense of the FHA route, when the client is being told that the banks are more likely to accept an offer on a property when the buyer is pre-approved for a conventional loan?

I strive to give all my clients the best deal.

This is a tough one from many perspectives. First off, real estate can be very local and I have not done a mortgage for someone in California that was buying a bank owned property. But I have helped 7 other clients in 4 other states that bought bank owned properties and everyone of them went with a FHA loan. I did not have one bank say no to the offer nor did any of them give myself or the buyer any grief when presenting the offer with a FHA pre-qualification letter. So I don't consider myself a true expert on what banks want or don't want. I am hoping some realtors with lots of bank owned experience chime in.

In regards to realtors in general, I have spoken to many that would rather see a conventional offer than a FHA offer. But not one of them can give me a good reason to why the buyer shouldn't go with a FHA mortgage. Let's get this subject out in the open now. FHA appraisals are no different now than a conventional appraisal. HUD did away with the VC sheets (Valuation Conditions) back in around 2002. Yes, appraisers had to be more picky when it came to FHA appraisals, but that is no longer the case.

So what is the big problem with FHA loans now?

That they take longer? False

That they are more expensive. Double False

FHA loans make more money than conventional loans. Double False (not if I compare apples to apples)

Just a hard loan all together? False

Summary : Sure, I call myself the FHA Expert. Sure, 90% of my business are FHA loans. But my job is to put the borrower into the best mortgage loan possible. I can basically do almost any kind of loan out there. When I screen my borrowers, I do side-by-side comparisons. I believe in comparing apples to apples and not what makes me more money. In many cases, a FHA loan just makes more sense, even if you have a 680 credit score and 5% down. Here are some of those comparisons, because numbers don't lie.

FHA loans vs Conventional loans - A true numbers comparision with 5% down - Using a 710 credit score

FHA loans vs Conventional loans - A real comparision with 5% down - Using a 659 credit score

FHA cash-out loans vs conventional cash-out loans - A real comparison

Do you know that by allowing FHA financing as a seller, you increase your chances in selling your home quicker. By limiting yourself with a conventional mortgage or a cash buyer, it could drop your chances by about 50%. Yes, real estate is local and not all buyers can go FHA because of the maximum loan amounts. Other than that, FHA loans are not just for first time homebuyers or those with bad credit or less than perfect credit. An experienced loan officer will know the difference and be able to explain the differences to the buyer, the buyer's agent, to the seller's agent, and to the seller. I am always willing to even talk to the seller if someone wants me to explain the situation. I know many loan officers are will to do this. It's called communication and keeping everyone on the same page. Let's not assume.... let's make real estate work without allowing are misinformed differences get in the way of helping people.

UPDATE because of some comments : Realtors stating that buyers going FHA will usually need seller help. News Flash, please read the e-mail above that I received. This buyer will now need to save 1 1/2% more for a 5% down convnetional loan.

Also, many buyers going with just 5% down, will usually need some sort of seller's assistance. Besides, even if they didn't, I would have my buyer ask for it, but usually after the initial offer is accepted. There are many reasons why. The main reason would be to get the buyer to keep as much money as possible. Another reason? To possibly buy the rate down. Again, a very good loan officer can get around these issues, no matter what loan the borrwer needs.

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For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2008-2009 Tax Credit for First Time Homebuyers : 2008 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!!

Posted by Jeff Belonger -- The FHA Expert.com -- FHA Loans -- FHA mortgages - USDA loans on 01/12/2009 01:59 AM

Comments (109)

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Originally posted at: FHA Mortgage Expert - Tri-State Area - New Jersey/PA/Delaware: Why do some realtors make it tough on BUYERS??? Just stick to real estate !!!

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109 Comments on Why do some realtors make it tough on BUYERS??? Just stick to real estate !!!

JAN

Well from my view, when the seller is informed it is an offer with an FHA loan, they believe the buyer is a first time home buyer, therefore possibly not qualified for the loan. Also some old school thoughts would be the buyer is going to ask the seller to pay a small amount of closing costs. That's why the Realtor would rather deliver an traditional loan offer.

My two cents,

Bret

Jeff,

I agree with you. More and more real estate agents are changing their opinion on fha loans.

I've never seen an offer with an FHA loan that didn't ask the seller to contribute something towards the buyers closing costs. Myabe it's just my small part of the world, but that's my experience.

BRET & MEREDITH..... . yes, and it's our job to explain in more detail. People need to stop assuming. Besides, who really cares if the buyer is a first time homebuyer. Doesn't the seller want to sell? Again, the realtor should be explaining all of this. Or let the loan officer get involved. And who says a traditional loan such as conventional is going to be easier. Wait, who said a conventional loan is traditional? FHA has been around since 1934. Just my .02. thanks for your input

RAFEEG..... . they should and we need more realtors and loan officers to educate the average consumer and some realtors.

LORRIE..... . I just added an update because of your comment... so thanks for your input. Again, real estate can be local. But it also comes down to the loan officer and what they are offering their client. As long as the seller walks away with what they want, who cares if the buyer asks for seller help. That part needs to be explained also... thanks

This is great advice. When the market was robust, sellers could get picky about the type of financing the buyer was coming in with (right or wrong)...in this market, sellers are lucky to see a warm body...it becomes a non-issue. I love FHA if it gets a buyer and seller together.

... every single one of my 'First time buyers' last year took an FHA loan (except the 2 who paid cash).

The loans were thorough, and required efficient handling, but were no tougher than the conventional loans my move-up buyers took.

You're so right Jeff - FHA is different today in terms of their appraising and transaction requirements. I actually am 'extremely' comfortable recommending FHA loans with confidence ... Oh and every single one of my buyers who applied for an FHA loan, got to the closing table, as I prepared them to always be one step ahead for documents and items needed.

I agree. Early on in Real Estate I tried to be a Realtor and a loan expert. I quickly learned I am not able to be both. I sell Real Estate, I have Lenders I can send the buyer to for financing options.

I sale houses, my job is to get the house sold. I rely on the Banker to advise our client and close the deal. Either way, no matter what side of the deal you have, the Mortgage Person is criticial, and in my opinion in charge of the deal.

Jeff - Great post about the misconeption of FHA vs conventional. You are right - the process is very smooth these days, especially since that VC sheet was eliminated. Every once in awhile, something small and simple is called for, but nothing major. In some cases, the FHA strength can be stronger than the conventional loan as well !! ~ Chris Somers

Jeff - I attach a sheet to my listings with Conv, FHA, & USDA payments and down. I ask them to make an appointment with a lender to pre qualify and decide what loan will work for them.

Just had an FHA appraisal on a foreclosure listing - it needs some work - it appraised at $8K over asking/selling price. As is, with no conditions.

1) What's not to like about FHA?

2) It is the buyer's decision with input from their lender of choice, hopefully a knowledgeable one.

KENT..... . you are right... it was a none issue when the market was crazy and I blame some realtors because they didn't educate their sellers... thanks for the feedback.

SHELDON.... . that's a pretty good record... and you are right, conventional loans can be tough also....and sometimes even tougher. It does come down to the loan officer preparing both the buyer and the realtors involved. A true professional will close the loans, unless an unexpected title issue or something not truly mortgage related pops up.

CHAD.... . in my honest opinion, you really can't be both. I have been attacked by a few people that were both and both those individuals attacked me on an issue that they were 110% wrong on.. and it was provable with hard cold facts from HUD's website. You just can't keep up with everything, even in one industry.

CHRIS & STEPHANIE.... . thanks for the compliment. And yes, the process is very smooth... it comes down to setting your clients expectations. .. and communication. And yes, in many cases, FHA can be much stronger. thanks

VIRGINIA.... . that's a great start.... and some work? That needs to be defined... but yes, you need a very good loan officer that knows how to make that distinction between FHA and conventional and not what's easy for the loan officer.

Jeff - I am surprised that any agent would counsel their clients to wait and save if they are already qualified, especially since rates are so terrific right now. Also, why put it off and delay the possibility of receiving income? Seems like an odd and uninformed move to me.

Jeff thanks for the great information. I learn a ton from you every week

Dave

JAN

As you know bro....I've posted about this not too recently. I can't stand it when people are too lazy to improve their situation. Many realtors are just that. They want conventional b/c FHA is too hard, but they don't take the time to discover that FHA is not more difficult or that the last FHA deal that blew up was 8 years ago when it made a difference or that the last FHA that blew up was b/c they were working with a loan officer who was a meat head. In this market...if you don't embrace FHA...SOMEONE ELSE WILL.

Jeff, I've always had the tendancy to avoid FHA due to the stringent inspections and guidelines. When did that change? That's good to know. It's a shame you're so far away from Texas! You do know your business and that's difficult to find around here...

Jeff,

Let me chime in on this post as well.

This whole issue goes back to professional courtesy. I would never in a million years give a real agent or my client advice on which home prices are the best, which homes would fit that client etc, just like a real estate agent should not be giving advice to a client on which loan program is the best. It is that simple but real estate agents can make it much more difficult and I feel it comes down to control issues with some agents.

FHA loans are fantastic products given to the right people.

In your specific case above, this particular agent made assumptions gave mortgage advice and now the client will pay for advice that the agent should of never given.

Look folks it's pretty simple out there right now, if a client cannot put 20% down payment or more, more likely than not the FHA loan is going to be their best option. Good Lenders who know mortgage guidelines inside and out know this.

It's also a re-education issue. This particular agent in this situation has assumptions in their head that the bank owned seller will not even look at an FHA offer and I know in Arizona that is very false because more than 80 percent of the loans are FHA right now. Also, what some real estate agents do not realize is that underwriting guidelines on conventional financing change all the time. Heck I think it's much harder to get a conventional loan approved and closed with a client putting only 5% down vs. an FHA where the client only has to put 3.5% down. Why do I know this and Jeff knows this, because we are professional mortgage lenders who bring our "A" game everyday and know our products and services inside and out.

It's real simple leave the mortgage financing to the mortgage professionals and leave the real estate business to the real estate agents.

Sorry for the long soap box Jeff, but this hit a nerve.

Go EAGLES!

JASON...... . as many of us know, there are more than a few agents that to give mortgage advice and steer borrowers to loan programs and to loan officers. It's been going on in my 16 years. Hey, I have no problem with a realtor referring a good loan officer. But there are some that are in each other's back pockets, which hurts the buyer in many cases. We just need to keep educating people out there on this kind of stuff. thanks

DAVE..... . my pleasure.... and thanks for the polite compliments and for the support.

LARRY..... . you make two excellent points. In some cases, that realtor is just to lazy to learn or to know the difference. And on the other thing that you mentioned, that usually their bad experience is because a loan officer didn't know what they were doing and screwed up the deal. I closed 11 transactions last year, all FHA loans, and all were told the day before or the day of closing that they are now denied. ... after 30 days of processing. I closed all 11... about 5 of them were difficult, but just needed some massaging and knowing of the FHA guidelines. As I mentioned to Jason, we just need to educate more.

DEB..... . as I mentioned about, many of these changes were done in and around 2001 or 2002. Loan officers should be educating their real estate partners. In regards to Texas being so far away? It really isn't. as long as both the borrower and the realtor trust that loan officer. I have closed loans in California before. I am not licensed in Texas just yet, but we are actually working on this.... thanks and thanks for the kind words.

GARY.... . did you finish? Just kidding... you are right on the mark in everything that you said... I have given my expertise on real estate before. But I always finish with, you should talk to a realtor or a lawyer. I know I have enough experience and knowledge to give my .02 on the real estate side of things. But it's when the realtor who emphatically tells the borrower that this is the best for them, just because they assume or because it would be easy for the realtor, this is the big issue. And the same goes for the loan officer that gives the same advice, just because they are afraid of FHA or can't handle it... or aren't approved. Whose best interest is being looked out for then?

As you mentioned, many bank owned properties are allowing for FHA financing. I could tell you some stories of what realtors told my clients about bank owned properties. I did a loan for a woman in CT, who decided to use me over the loan officer that was recommended by her realtor. Once he found out that she was using me, he told her that banks don't want the buyers to use lenders that aren't in the state of CT. LOL That was a good laugh. Well, we closed her in 15 days and even the realtors back then told her that won't happen, because it took over 30 days for a FHA loan.

It all comes down to education and dealing with a professional loan officer that knows what they are doing. Thanks for that excellent feedback.

Hi Jeff: With everyone struggling to make deals happen these days, I'm surprised that a realtor would nix the opportunity. Eschewing a paycheck because they're worried about the qualifications of the borrower is short-sighted and inflexible. It is no easier to get a loan done conventionally than through FHA. In fact, it's probably harder. Thanks for the post! I agree with you. It's best that the realtor leave the financing end to the loan officer and vice versa. At least that's what I do. I have no interest in telling a client how to negotiate a home sale. I trust the realtor to get this done for their client.

Jeff - AMEN!!! Thank you again for another informative and educational post touting the benefits of FHA loan products. I get so sick and tired of coming up against ignorant, lazy and unprofessional agents who will turn their noses up and reject my FHA clients offers simply because they think my clients and their offers aren't are worthy or viable as conventional or cash buyers, even when my FHA clients offers are higher than other conventional and cash offers.

The more that we educate our clients as well as our Realtor associates, the more we will weed out the "losers" because that's what they are when they turn away viable and qualified FHA buyers.

PAUL.... . well, you would think that would be the case. But in regards to the loan officer speaking about pushing the buyer to a lender to do a conventional deal, this loan officer should be shot also. I had a realtor that tried telling me what to give her clients and I fired her. Even though she was giving me some good business, I just wasn't going to put up with it...

And yes, it's not as easy anymore to get a conventional mortgage than a FHA mortgage. It comes back to educating everyone involved.

DONNE.... . thank you very much for those kind words and for the compliments. I think we need to keep posting this once a week. Did you read Deb's comment? She didn't know about some of these changes. These educational posts do help and not just the borrower. We both agree on all of this.... thanks for your input and for the support.

Jeff could it be as simple in that for the past few years at least here everybody went Conv. That some of these agents have little or no experience with FHA so they stay away from it. I've been doing this since 81 and up until a few years ago FHA or VA was the way to go.

Jeff, I actually suggest to many buyers to consider FHA. I really don't get why some people are against it. I bought my first home on fha and refi'd on it.

As far as most buyers needing fha help, I've found it quite the opposite personally. Many just ask for it because they can...and there is nothing wrong with that, IMO.

I enjoy reading about your passion on FHA loans. I think more folks should give them a shot. Also, I'm on a big kick of the FHA 203k loans this year. Opens a lot of doors for both buyers and sellers.

Jeff, FHA and VA used to be the majority of the business I did from 1988 until about 2001, when all hell broke loose. There is nothing wrong with an FHA loan. As a matter of fact, if folks are looking at a 5% down conventional loan it is my understanding that the Mortgage insurance is higher on the conventional loan, therefore making the payment higher for the conventional loan.

I think that the lender should look at the buyer's finances and together they should make the decision as to what loan is best for the buyer. Let me say it again, there is nothing wrong with an FHA loan. As a matter of fact, I believe much of the mess we are in is because we figured out a way to beat the system and do the 80/20 with no MI, which is one of the reasons the banks are in the quandary they are in today.

An FHA loan means I'm working. No problems in my book!

DENISE..... . this is very true. But if you aren't sure about it, ask about it. If you have heard negative things about something, do your own research and don't assume. And for those loan officers that agree that conventional is better, when only putting 10% down or less with credit scores under 680, should not be in the business. There isn't one comparison that I have done in the last 18 months that has proved otherwise. Just my .02.

STEPHANIE..... . that's good, but the loan officer should be the real one suggesting anything. Each client is different. Depending on assets, credit scores, income... etc etc. I truly thank you for the kind words... but ti shouldn't be about giving FHA a shot... only if it makes sense. The problem with all of this, some realtors like full control. And in many cases, the realtor is the first person that the borrower talks to... sad, but so true... in any case, thanks for your input and feedback. I hope more people read comments like yours.

AUDREY..... . I wouldn't go as far to say that 80/20 to get around MI was a big reason to today's credit demise. Yes, it did hurt some.... there was a great product out there when doing a 90% or 95% with no MI, but even many loan officers didn't know about this product.

But trying to stay on subject... one main reason to why so many loan officers got away from FHA mortgages from 2001 to 2005, was because there were so many easier programs that got a borrower a mortgage, yet it wasn't the best program for that client. I even know this for a fact, because I worked with a few and hung out with a few that went to subprime or even level financing, because it was easier for them, yet more costly for the borrower. Very sad...

To answer your statement that with 5% down, MI is higher on conventional loans... that would be very true. On 10% down, it's about the same. But where it differs no matter what you put down between 15% to 5% down, is the credit scores. There are pricing hits from 680 to 620, which will make conventional rates much higher. I have had a few loan officers argue with me on some of those blogs that I mentioned above, telling me that I was using very high rates in my comparisons. But they NEVER took the pricing hits for the credit scores into account. And I even stated this in the blog. Now, that is very sad and scary. thanks for your feedback.

DAWN.... . I am working no matter if I am doing a conventional loan or an FHA loan. I always explain and educate my clients, so it doesn't matter what program they are doing. If you are a better than average loan officer, a FHA loan is usually not as hard or more work. If you prepare your clients and interview them correctly, even the messy ones per se are just as easy. thanks

Hey Jeff, just to clarify..I agree. I'm by no means a mortgage expert. But if my clients are frustrated about large down payments, high closing costs, etc. I mention that they should ask about it. That's all. :) I'm not a control freak on the financing side. I just try to help them find an honest and knowledgeable lender such as yourself. I'm the first one to tell them that I won't give mortgage advice.

I am amazed at how many agents live in the past about FHA or even VA - I get so tired of explaining it all to them... sending them your way :)

JAN

Jeff, and Stephanie: Please... what i the FHA 203k loan ? Jeff... great post... lots of great information... thanks for sharing. I have been using FHA loans for years and years. I really cannot say I have ever had a major problem with them.

Although I consider myself to be knowledgeable to a certain degree when it comes to mortgages and loans, I prefer to leave the loan advice to the mortgage professionals. Sure, we're all entitled to have an opinion in life. However, I know I'd be livid if the shoe was on the other foot, and a mortgage rep was advising my clients to go with a different home vs. the one I advise them is the best fit for them. Selling a house challenging enough, so why add extra stress?

This is a great post and great information. It was my understanding that many REO sellers were not big fans of fha offers because of the stringent guidelines and requirements. REO companies do not want a government agency or other entity telling them what to do with their property, they want it sold as-is, they want it sold asap, within 15-30 days or less. They want it sold without the hassle of having to do extra things prior to closing. They also believe that most bank owned properties will not qualify for financing to begin with due to the property condition, so in some cases they direct the listing agent to state in MLS that seller will only consider cash offers, or something to that effect. It might not have anything to do with a buyer's qualification, but moreso with the property not qualifying for fha or conventional financing in its current condition, unless it is strictly a rehab/construction loan.

This is a great post and great information. It was my understanding that many REO sellers were not big fans of fha offers because of the stringent guidelines and requirements. REO companies typically do not want a government agency or other entity telling them what to do with their property, they want it sold 'as-is', they want it sold asap, within 15-30 days or less. They want it sold without the hassle of having to do extra things prior to closing. They also believe that most bank owned properties will not qualify for financing to begin with due to the property condition, so in some cases they direct the listing agent to state in MLS that seller will only consider cash offers, or something to that effect. It might not have anything to do with a buyer's qualification, but moreso with the condition of the property and the home not qualifying for fha or conventional financing in its current condition, unless it is strictly a rehab/construction loan.

After reading your post I wonder if the loan officer that wrote to you left out something: Perhaps the homes his client is looking at won't pass an FHA appraisal and the real estate agent knows that? Or maybe the buyer is balking at the steps that have to be taken in order to purchase FHA on a bank owned home? (Turning on utilities prior to the appraisal, making any needed repairs himself/herself, etc)

Other than that, I can see no reason why a real estate agent would want their client to use a conventional program, especially when the client is qualified for an FHA mortgage.

When asked by a buyer what a down payment, monthly payment, etc will be on a purchase, I swiftly tell them they need to speak to their lender about all things mortgage. I know houses and the local market; the lender knows about the money. I don't pre-qualify (never have) and I don't give advice on the loan type. Its not my area of expertise! I work with several great lenders and am happy to send my buyers their way.

Hey Jeff!

Singing to the choir on this one. I think it gets down to Realtor education and past experience. Lets face it, when subprime blew up we all went to FHA. Many of the folks doing the loans could hardly spell FHA and gave many folks a very bad or impossible experience.

Post like this one will help educated. Keep up the great work

Tony

Jeff, it's kinda amazing that any seller would put any roadblock in the way of a sale in this day and age. And n California, no less, where things are so much worse than most other places. In this case, it sounds like the borrower is working with a REALTOR with no experience prior to the bubble, when his/her argument might have held some water.

Unless a Realtor or agent knows the Mortgage end they need to not give any advice and defer to a mortgage pro.

FHA loans are no issue here - as smooth as a conentional with the right mortgage person of course

Hi Jeff, The problem we run into here is that we have many cities with a point of sale inspection, both interior and exterior. The interior inspections are much more lenient now where in the old days, if there was carpeting in the bathroom or kitchen, it had to be removed and you almost always had to have a heating and electrical cert, but that is no longer required. I had many cases where a roof cert was also required but that has changed as well...not quite as stringent.

The problem we run into is when there are exterior violations such as a roof repair, garage floor or driveway or peeling paint, and it is winter time. Generally, the fha appraiser will go along with whatever the city finds and won't add more to it. Some pos cities will allow a buyer to waive or assume violations, some will not. In either case fha wants the violations addressed and since we have about 6 months of winter here, that usually means that money will have to be escrowed and the amount is generally 1 1/2 times that of the estimate. That's what gets realtor and sellers afraid of fha.

Jeff, a little education goes a long way.

Oh for pete's sake! I cannot understand why Realtors (who all jave more than enough to concentrate on in their own business) would want to act as if they knew a fraction of what it takes to understand the complex number of loans available and guide a potential buyer thorough the process. This falls under the often talked about theme of agents acting as loan officers and vice versa. There is still only one answer to that query. NO!

Now that that is resolved the next challenge is whether your Eagles can keep up their incredible run?!?! Great game yesterday. Oh and here's our current joke in Texas: What do you call 47 millionaires watching the Super Bowl? The Dallas Cowboys...

Absolutely - FHA's are getting a make-over and importanat new look

Jeff-

Good morning! A good loan officer is truly worth his salt these days! I think that's how the expression goes. When I first got into the business 20 years ago I remember taking financing classes, learning FHA loan programs. My broker thought it was my job to know what financing was available and what was the best? It was tough to keep up then and I always consulted a loan officer before sticking my foot in my mouth.

Up until the crash, I saw a lot of loan officers getting by suggesting the program with the least paperwork and verifications. Look where that got us. Now that financing has become less available, more complicated and programs change regularly it is more important than ever to work with true professionals like you.

I must say though, not all loan officers are created equal and I have scratched my head wondering what they were thinking.

I once referred a client to a loan officer that had been begging for my business. The client would have been able to stretch and afford a slightly higher payment. After selling his current home he could have upgraded by $100k or so. The loan officer recommended that my client keep his current property as an investment because the loan program wouldn't verify income. He told my buyer to effectively lie on the application to keep a property that would put him in the poor house within two months without a tenant. That was the worst advice my client could have received. That loan officer did not get the loan.

I appreciate loan officers like you that know your product and your client. Thanks for being here!

Meyer L

I agree with you, Jeff. I just recently closed on a FHA financed mortgage, and there were zero conditions. Their hired inspector found only one minor repair on this new build, which was taken care of promptly by the builder.

Just one question? Why do the FHA guidlines now require two appraisals, if the home was sold within the last two years?

Shawn Davis

In Georgia we have gotten around this problem by given the buyer X time to secure the loan . IF it is Fha or Va we do have a fiorm we present lateer. But heck a loan is a loan and if the buyer qualifies whats the problem

These days I don't think you can know enough about loan products. FHA definitely has it place in the market and is a great product. The guidelines are constantly changing especially with investors loans. I really enjoy working with great loan officers and they are hard to find. Especially those who can get investor loans done.

FHA is an amazing product!

I did write a similar note to my buyer's agents on Friday where I counseled them against giving loan, short sale (yes that could be in our realm of expertise) or property management advice and just to defer to getting customer permission to have the appropriate advisor to call them back!

I am also finding that conventional can be more icky than FHA as far as repairs and UW guidelines go. You also can go FHA if you have more than 5% down. Heck, I had a buyer on a listing last spring put almost 30% down and use FHA on a home that should have been jumbo.

I don't understand why a buyer would want to wait another month or two in order to use a different loan type. With this scenario, what is the harm in putting in an offer with the FHA loan today and getting a response?

Jeff I think the simple answer is that most Realtors don't know much about financing and if anything is not "conventional" they feel uncomfortable about it. There are quite a few that would rather not learn but be negative about something they know nothing about.

STEPHANIE..... . that's okay. I understood what you were saying, just that I wanted to add to it and stress it for others to see. Small advice can be okay, as long as you end it with... "but you need to speak to a professional loan officer."

THESA..... . no, you can keep them. But yes, it is amazing to learn how many of them live in the past. From talking to you many times, you definitely go out of your way to understand the process and what needs to be done, so you can help. I applaud you for that.

KAREN..... . what about the FHA 203k loans? Yes, they are a great product. But if you talk around, many don't know how to do these or have the experience. But as mentioned, they can help the buyer or seller.... getting that buyer into a home that is now fixed up, after they initially buy it. And thanks for the compliment.

AMBER..... . sure, opinions are fine, but we are talking about facts. As what has been mentioned a few times, realtors might have had trouble with FHA loans because the loan officer or lender didn't know what they were doing. And I agree, selling a house can be stressful enough... thanks

UNKNOWN.... . I have never heard anyone say that they didn't want a gov't agency telling them what to do. Even though Fannie & Freddie have now been taken over, even before that, they still had guidelines as well. So I am a little lost on that one.

In regards to your other statement, that most bank owned properties will not qualify because they will need lots of work. Again, I have only done a handful. I guess we need to define work and what needs to be done. Besides, there are ways to get creative about this, such as a 203-k loan... or, getting the bank to offer seller assistance so the buyer can do some repairs. I truly understand your point, but these types of properties are still new to many. And banks in my opinion, won't get as greedy to as what kind of financing they will allow. They want to unload the property asap. And thanks for the polite compliment and for your feedback.

SONYA...... . oh, okay, that was you above. I was wondering why it sounded familiar at first... lol

Ran into this situation last week. Had a buyer wanting to go VA on a great, like new REO. Listing agent informed me that they would not go above asking (higher LTV). They wanted only someone with equity down. We changed to FHA and Rural housing, only asking for 100%. But no dice. It was kicked back. Maybe it is just this particular company that wants the buyers to show they have some $ invested.

I just know that most of the loans my buyers are doing are the FHA and VA. Love them. Too bad the REO's are as accepting.

Well, the comments are a mixed bag but I'll chime in. I DO stick to real estate. I have a great support group of lenders around me and I let them talk loans to my buyers. In fact, most of my clients see their lender before they see me. I love it. But for questions regarding loans, I always encourage my buyers to sit down with their lender.

I don't see any problems with fha loans, however in my area, the majority of bank owned homes cannot be sold with an fha loan- they have peeling paint or broken windows, or mold, or one time they required my buyer to put appliances into the house before she could close- what's that all about??? Most bank owned homes don't come fully applianced.

Jeff,

Most of the fears agents have about FHA come from anecdotal stories from the past...i.e. tougher underwriting, tougher appraisals, stricter compliance to codes, extra points from sellers, extra conditions on commitment...all of which we know are now 'Old Wives Tales'... Couple that with fear from being unfamiliar with the FHA mechanicals, and there you have it!!! Thanks, Fran

Jeff - thanks for the continued education regarding FHA loans, and for generating all these comments...an education by themselves.There still seem to be lots of myths floating around about FHA loans.

Jeff

Jeff,

Really good post and enlightening feedback. Since I'm always doing FHA, VA, USDA as well I'm obviously working with agents who are either familiar with that type of financing and at least somewhat comfortable, or open to that type of financing and willing to learn. It's amazing how many misconceptions still persist regarding FHA. Thanks for doing such a huge part to dispel the myths!

Gerry Suarez, Jr.

Your FHA Loan Pro!

I love FHA loans! Sometimes I do get worried about a property passing the FHA appraisal. They're not as strict as they were, but there are usually still some requirements on many homes. One that just inspected a listing of mine on Thursday came back with needing some wood-rotted trim replaced and painted. One I had before that wanted the property regraded. And one before that just needed screens put in a couple of windows.

On bank-owned, many arent' even offered in the listing except as conventional. Here, some have put in their notes that they will only accept certain loan types. But I've done FHA on bank-owned, HUD, and short sales with not many problems.

I am really glad you have shed light on this. It got so bad for a while in So. New Hampshire before the market changed, that listings would say in bold letter NO FHA OR VA! Now, the listing don't have that indicated, but the mentality is still there! It is a mentality that is out there for all of the reasons stated in the comments above, and unfortunately, I don't think it will go away soon! If at all possible, I ask my buyers to get approved both for an FHA and a conventional loan so they have more flexibility in choosing a home to purchase.

Hi Jeff - I do not have a problem working with FHA loans, or any other type of loans for that matter. Over 60% of all of our office's loans are presently FHA loans.

One of the drawbacks to an FHA loan in my area has to do with the property's private water well. All through the decades in my county of Stark in Ohio, water wells were drilled adjacent to the foundation of the house. In order to access the well for maintenance or repair, a slab of concrete that doubles as the stoop (front porch entrance) can be removed in order to allow a well drilling rig to improve the well. Hence there is a small well pump room off of the basement. It seems as if all of a sudden the well head must be away from the foundation by a certain amount, and not accessible from the basement. This is causing tremendous aggravation when dealing with FHA loans. Neither the seller nor the buyer wants to pay the expense to have a new water well drilled, especially in areas where city water might soon be available.

Though not totally impossible to get one of these properties to go through for an FHA appraisal, generally they do fall through due to underwriter guidelines. The entire transaction is on the 99.9 yard line with inches to go, and every one learns it will be a deal fell through because of the FHA stipulation. Lots of time and money lost, with resentment and anger generated to buyers and sellers. They've already paid for home inspections, and other charges, etc.

Even if we ask for an FHA appriaser's advance opinion, they do not have the authority to tell a buyer or seller beforehand that the well will be okayed. They make a note of it on their forms, and it is up to the underwriter. It seems to be the lender's underwriter that says NO at the last minute. Because of this, in the eyes of the buyers and sellers, *all* the professionals working on the transaction look as if they do not know what they are doing.

Thanks Jeff-- very informative post.

I have been involved in many purchases where my buyers go FHA and I have never had an issue. I'm glad you are pointing this out.

Thanks for the post. I have had several buyers use FHA. I have them work with the lender or mortgage EXPERT (which is not me) to determine what will be best for their situation. I have not had any problems with this.

Hey Jeff- I learned a long time ago to let the lender and buyer figure out what loan program is best and then the buyer and I find the home. I got many an agent and Seller to accept my buyer and their FHA loan back when conventional was hot. Its all in how you present your client to the other side. After all a good strong buyer is a good strong buyer no matter if they are going FHA, VA or conventional. Great post

it was standard business practice to just ask for seller contributions as you could just add it on top of the price , appraisals where never and issue, now, things have changed, and realtors and loan officers need ot know wha tis best for the buyer , not just ourselves

I realize that you allready have 63 commments! BUT..this is excellent. Thank you so much for the post!

I can hear the 'groan' now.... I talk to a realtor about a pre-approval and they 'groan' when I say FHA.

Then I explaint to them about how similar to conventional it really is and win them over about 1/2 the time.

Right now in Manhattan because the majority of buildings are co-ops and they require 20% down at a minimum, I have not seen any FHA loans. I understand the dilemma as far as another personality coming in and messing up the situation, its always a bit tricky.

Jeff - As many of your commenters have mentioned, many of the REO properties in their areas can not go FHA because of the condition of the property but what they don't understand is that they can go FHA - FHA 203k. However, I've been finding that the REO listing agents around here (Ventura County) are even less enthusiastic about the 203k product as they are for the standard 203b or 234c.

Just recently, one of my FHA buyers offer was rejected for a conventional offer and the property eventually BOM because of the property condition. When my client's Realtor went back and suggested to the REO listing agent that our client wanted to make an FHA 203k offer, the REO listing agent informed my client's Realtor that they were now only accepting cash offers.

Granted a 203k transaction is a little more time consuming than the standard FHA but chances are that the bank seller would have probably netted more from my client's 203k offer than they are ever going to get from a cash offer, which will do nothing more than bring the comps down for the area.

ARRRGH!!! Some agents are just so infuriating, lazy and kind of stupid. If REO listing agents would just do their job of educating and explaining to their bank sellers that an FHA 203k offer is much more worth and viable than a low-ball cash offer then we would see a lot less of these types of situations.

Hey Jeff.

I had a buyer last year who was trying to buy a short sale listing. The seller said conventional financing only. The loan officer said that it didn't matter. When we got down to a week before closing, we found out that the original sellers were out of the picture and that without them signing off on the contract, their lender would not allow the property to transfer to a third party with FHA financing.

The "seller" who signed the contract was actually an investor interloper who had recorded a "letter of interest" in the property with the county clerk. It was a wierd one. Needless to say, I won't waste my time showing any of this listing agent's properties in the future. A little homework and a little disclosure would have saved a lot of heartache for my client.

KRIS.... . none of that was brought up. This client just started to get pre-qualified and just started to look for homes. There was no particular house found as of yet. This was just the realtors advice and input... but you do make a good point about utilities. But I make this known to any borrower as they look at bank owned properties. Again, it just comes down to educating the consumer. Everyone needs to be on the same page and then go from there.

AMY.... . in most cases, that's how it should be handled. And it's good that you have a few loan officers/lenders that you trust and that get the job done. thanks

TONY..... . yes, I think many of us are singing to the choir. But there was at least one realtor that wasn't aware of the changes, so this post helped. And yes, education is key. So are the bad experiences in the past that realtors had with FHA... but again, it comes down to the loan officer, their knowledge, their communication, and how they educate everyone. thanks

MARGARET.... . that could be a good assumption, working with a realtor that doesn't have much experience in regards to the types of mortgages. Then again, I know a few that have been a realtor for 15+ years and they still talk negatively about FHA. And yes, why would agent put a roadblock out there in not selling the home.

LAURA.... . I agree 110%... and in many cases, even if that realtor knows the mortgage end, they basically should say... "I could give you advice, but you are best talking to a loan officer."

RANDALL..... . that's good to hear. It goes back to the fact that FHA mortgages aren't just for those with less than perfect credit. And for the fact, apparently those lenders know what they are doing.

BARB...... . you bring up some good points. Yet, you did say that the interior inspections were more harsh in the past, that they aren't as bad now.

In regards to the roof and issues with that? I will be honest, yes, FHA wants a 2 year life expectancy. If I was a buyer, would I want a roof that wasn't going to last longer than 2 years? I know flat roofs can be an issue, but if they have a roof cert and it checks out okay, then there are no problems. But seriously, how flat roofs does one see nowadays? Other than that, I don't have a problem with making sure the roof is adequate. The other issues? I guess it depends on how severe they are... thanks

I think the biggest problem about FHA loans is misinformation. Many people including buyers, sellers and realtors is that FHA is still complicated and hard to get approved. I have heard from realtors, wow, this house won't be approved for a FHA loan or FHA loans take much longer to process. It helps to know a knowledgeable mortgage loan officer to help educate buyers and sellers. I know I try to stay on top of all the latest news about FHA. I am always willing to share what I know with other realtors too.

I use to do FHA ALL the time then times changed and we have done conventional financing for so long it is hard to remember the new better options. But the times they are a changin' and as for FHA....They are back! Full force and something to look at for sure! My way is to send em to the Mortgage Expert and let them decide what is best.

Deb

Sorry to dispute, but in my experience, FHA loans ALWAYS take longer to close, usually with both parties ending up very frustrated and angry at each other. I have no problem working with buyers that want/need to go FHA, but the fact has been for me that they really do take longer and are more frustrating.

Good post Jeff!!! Keep educating and in the end......everyone benefits.

(also kuddos for have your blog "featured")

Emily,

I guess it is because of the loan officer and not the product. Fha is a great product. I am sure Jeff will agree with me

HI Jeff,

Boy, this blog got alot of interest! Well done! Also, kudos to you for responding to all of the Comments posted! I read every single response, and have a couple of additional points I would like to make. I agree with you on this btw! I think most lenders would actually! We adopted the motto, " you sell the house, Ill handle the financing, you stay out of the financing, and Ill stay out of the buying and selling of the house"> The unfortunate thing is, that the people remaining in the mortgage business, really WANT to make loans work, and really want to help! Realtors, much like loan officers, have had a most excellent run the past 10 years, and cherry picking was a common thing in the madison Wisconsin area because there were SOOO many deals! Now, I agree with many of the posts that the deals are fewer and far between. Hence, we are all trying even HARDER to make things work! In the end, everyone, INCLUDING the customer wins! These loans ARE fantastic, but the difference with you, is that you tell everyone everything UP FRONT! Many people, are afraid of what they dont know or understand! Education and cooperation are so vitally important moving forward!

Many of the realtors who responded to this blog need to be working with a new lender! They need to be kept up to date monthly, if not more by their lender. However, they in turn have to be accepting of information and training! It is about partnership folks, and this great blog is an example of how & why!

Thanks...Darin

I am a Realtor(R) only, and always have the lender work with the buyer to decide which type of loan to use. However, I do talk a lot about the advantages of FHA loans with my buyers, and they usually go with FHA.

One disadvantage is that the property must be in good enough condition to pass the FHA appraisal. If there are repairs that would be required by FHA standards, then the repairs must be done prior to closing. Sometimes, REO sellers will not do any repairs, which means the property cannot be financed through FHA. However, these same REO sellers may be receptive to allowing purchase through the FHA 203K loan, where the cost of the repairs are incorporated into the loan.

None of my buyers have used a 203K so far, but there are a lot of REOs in my area right now that could be sold by using it.

The biggest thing from a contract perspective it to build in language that the seller will not incur any additional fees, and I have seen loan officers switch items from the buyer to seller and vice versa on the HUD1.

Jeff, great post! We have a condo in Arlington, VA., that we may just refinance for now. I'm going to check on an FHA loan. I hope this is durable, since this is not our primary residence.

JOHN.... . I agree, education can go a very long way, which is why I am glad that I found blogging... thanks

RUSSELL..... . well, it still goes on and as I have stated, I even hear this from realtors of 15+ years of experience. They talk about FHA as being the negative, the anti christ per se. But I am glad that you as a realtor understand this and seem frustrated.

Now, on another note.... don't be knocking my Eagles. Just 2 more wins and this could be an incredible year in Philly sports. Watch out Boston, Philly is making a run at championships. And I love the joke... how funny, yet so true... lol

JANICE..... . the makeover per se has been done a while ago. The problem in part of this is from loan officers that did loans that took no thinking, yet it wasn't the best for the borrower. thanks

MEYER.... . I think FHA training, the basics for a realtor, is a good thing. And I agree, so many loan officers used the easy loans, just to get the client into the house or to refinance. I have always said this, but I would say at least 30% of all sub prime loans could have gone FHA. That is an extremely high number.

In regards to your example, yes, that was very poor advice.... and I have seen this more than enough, which is sad.

SHAWN..... . well, just because it had zero conditions, doesn't mean it was easy. It all comes down to the preparation of the loan officer and what they tell the borrower what they need. And having a very good processor helps also.

In regards to your question... I will be honest with you, I haven't heard about that one. Maybe it was that specific lender? I know from a title search and the appraiser, they look at the last 3 years, to make sure how many times it has changed hands. I know that a lender might want two appraisals when it comes to a property being in a declining market. What was the name of the lender? I will check with my underwriters on this, but if I had to take a guess, that doesn't sound correct. thanks

CHARLIE..... . how much time are you giving the borrower in the contract? In all honesty, it should not be an issue with 30 days. And if the loan officer did their job, 20 days is even very respectable. I closed 5 FHA purchases in 5 days or less in 2008. The reason being is because those other lenders dropped the ball after 30 days. All 5 were rushes. But yes, a loan is a loan, it just comes down to how the loan officer put it together and set the clients expectations.... thanks

MARK...... . no, you can't. Information is changing to often, no matter what the program. And yes, FHA has it's place more than ever, especially with those putting 10% down or less with credit scores under 680. Almost hands down, FHA is the way to go if the borrower fits that scenario. And I will agree, not patting myself on the back, but great loan officers are hard to find. Find one, hold onto them... thanks

SHAWN DAVIS.... here is your question : Shawn's question... I just received this from my head underwriter...

"2 appraisals are needed on flips and cashout above 85ltvs that is all I am aware of. I will check tomorrow on it. Bogus I believe"

That was what I figured and I will check on this with HUD tomorrow.... thanks

Jeff, You aleady know how I feel about this. Stick to what you know and let the other professionals do their job and most importantly get out of the way. My favorite SM thing to tell someone is next I need legal advice I'm going to my physician.

Thanks

JAN

Hey JB

Heard u had a great time in NYC.

RENEE.... . yes it is.... and I think that's great advice on telling your buyers agents not to give mortgage advice, to let the mortgage professional handle that.

In regards to some conventional loans being more icky than FHA? Yes, that can be possible. And I can't make a true judgment call on your buyer that put 30% down and still went FHA. If I had to take a stab at it, I would say that was a mistake. Again, I would need to know details, most importantly credit scores and if it could have gone conventional with an approval. If so, I would have gone conventional. Depending on the loan amount, you will still have mortgage insurance for 5 years on the FHA and UFMIP. I would love to know the details and why they were told to go FHA... In this case, this is where the loan officer could have slightly made a little more money, even if the rates were the same, because FHA loans get a slightly higher SRP fee paid back. thanks

MARK M. ..... . I agree, that they should just put the offer in as a FHA loan anyhow. Some banks are taking a few months anyhow, and in some cases, probably to see what best offer they can get. Gee, it can't hurt, right?

BILL G. ..... . I agree and just that answer alone is sad, that they would just be uncomfortable with anything other than conventional financing. But I have seen loan officers do the same. It kills me, when these same people say that they have the clients best interest at stake. Yes, learn about it, educate yourself about it.

UNKNOWN...... . what's even more sad about this, is that I wonder if the listing agent is taking this upon themselves, and not the bank. I had a realtor tell my client lies, what the bank wanted and what they didn't want... and imagine that, we closed on the FHA loan and I was even out of state.

Here is what the realtor told my client. The first lie... that banks owning properties don't want to deal with lenders out of the state of CT. Banks don't care where the money comes from.

2nd lie... that his loan officer only approved them for $125,000 and that he would not show them houses up to $145,000, the number that I approved them at. Well, he changed his tone quickly, when they gave him one day to think about this. And imagine this, we closed in 16 days, from start to finish.

My whole point to this? I truly wonder how many listing agents make up there own rules, just to make it easier for them... and wondering if the banks knew this, how many more homes would they allow that realtor to represent them.... Very sad and scary.

MARIAN..... . that's great, you are one lucky realtor then. But if most of your clients see loan officers before they see you, doesn't that mean then that they are dealing with a lot of loan officers that you aren't familiar with? Just curious.. thanks

CHRISTINA..... . well, it sounds like many of the homes in your area have been destroyed then. Which makes me sick also, that people leaving their homes, would destroy them. What happened to pride? Dignity?

In regards to that issue, there are 203-k loans... and no, they don't take longer, not if you have a good loan officer or a very good lender. They can still be processed and closed in 30 days. Secondly, you don't need full appliances. You need some type of functional oven/stove, but you don't need a refrigerator.

FRAN..... . bingo... so many old war stories, that need to be talked about, and given the correct info now. I fault the realtor that doesn't want to move forward and to learn. If still hung up in the past, they shouldn't be selling real estate. What about real estate in general then? I think that says a lot right there.

JEFF D. ..... . my pleasure. I don't think we can never beat a dead horse in this case. And yes, I think many of these comments are an education themselves. Thanks

Jeff,

Great information again. Haven't had a problem here, FHA loans are solid, and my great lenders can explain that to the other side (and have when needed). The best buyer is one that has been preapproved with a great lender that understands every possible program.

List and Sell (FHA loans are as good as the others and no more complicated) Gary @ RentonHomeFinder.com

Jeff: I was wondering the same because it didn't make sense but buy and bail was just around the corner for us and I am thinking that is the reason why they went that way.

Hi Jeff, thanks for checking this out for me. I am thinking it might be the lender also. Looking forward to hearing HUD's response on this today.

Thanks again,

Shawn

GERRY..... . it's great to hear that you know many realtors that are open to any kind of financing and allow you to do your job. I still get some resistance from some realtors, questioning me why the borrower is going FHA... or assuming that they are a bad borrower. And what's worse off is that we can't really tell them much. I can't say if they are a good borrower or a bad one. Besides, if I can do the loan, that should be good enough. thanks for the compliments.

SHEREE.... . I am sure many of us could find several examples of homes not passing FHA.... and did you know that they could use a FHA 203-k loan. But let me ask you a question... if someone is finding wood rot and a few other things, wouldn't you as a borrower want an acceptable and safe house? Most of these buyers don't have the extra money to fix these things up, and even if they went conventional, it could cost them more in the long run. Besides, you can get creative and sometimes make these things work. Giving more seller help, so the borrower can go in and fix a few things up on their own? I have had this happen. thanks for your feedback.

JOAN..... . you are absolutely right, that the mentality and after thoughts are still there. People still use the negative experiences of the past for future or current borrowers. And times have changed, for the better on FHA loans. It goes back to education, so I am glad that I had shed some light on this. Thanks for the comment.

JIM.... . that's a pretty high number and I expect that percentage to rise some. But yes, private well water issues are the worst. I have had to only deal with it once... my advice would be to have the well inspection done prior to selling the home and have it handy for any buyer. Or at least in the beginning, have it done by the buyer.

In regards to underwriters killing the deals at the end, I am not sure what they are killing them on. Is it the well water issues? Again, have the underwriter review the tests before the appraisal is even done then... and not wait to the end. I know we would do it this way and allow to review those docs prior to anything else. Overall, it just sounds like you are working with lenders that are brokers, who have to rely on someone elses answer from another company, having no control... or that they just don't want to do them. PS.. we have applied for our Ohio license.

TINA..... . my pleasure and thanks for the compliment.

DAVID..... .so am I, because I like the feedback. Sure, there will be some issues or problems, but not just with FHA loans. And if you as a loan officer and your underwriter are creative or try every avenue, I am sure some that were killed in the past, could have been done. I closed 11 FHA loans in 2008 that were denied by other lenders at the last minute. 5 of them weren't that hard, just needed some tender love, some cleaning up. Just lazy loan officers in my opinion.

KRISTI.... . that's a great start, by having them work with a mortgage expert and not just someone that seems to think they know what they are doing. I can usually pick these out in the first 15 minutes, when asking the borrower specific questions. And if the loan officer didn't ask them these questions, it becomes a major red flag. Thanks for the comment.

Hi Jeff - The fact that a property has a private well is not the issue. Both wells and septics must be inspected and approved by the Stark County Health Department. So it is not a matter of having the well tested *first* and submitting any results. Besides, that could be a very easy and rapid waste of money for the seller (if the property is on the market for any length of time), because new ones will be necessary.

If the well head is located a proper distance from the foundation and easily accessible with the proper riser and access means, that is not a problem.

If you read the original comment again, the problem is when the well head is located in a small room that adjoins the foundation of the dwelling, in other words in a well pump room. Often there is also an accumulator tank in that room, and sometimes even a shallow well jet pump motor.

Having the situation "preapproved" is seemingly impossible at least while working with area lenders. The lenders maintain that under the newer and stricter guidelines, they do not get to choose which FHA appraiser will be given the property to appraise. They tell me it could be any one of about 10 that are actively used. Some of the FHA appraisers can be on the recommended list of the lender, but not all.

Since it is unknown what appraiser will visit the property on behalf of the lender, it is an unknown what remarks they will put on their forms. Of course at the late date when the appraisal takes place, both buyers and sellers are in no way in control of what the underwriter's decision will be.

The latest conversations seem to indicate that mortgage loan originators are totally at the mercy of the FHA appraisal process, and what use to take 30 days to close in our area now take 45 and sometimes many, many more days. It is to the point that transactions are having a tough time closing at all lately.

Yes, the FHA203 could possibly prevent some of the snafu. but the buyers certainly do not feel they should be taking out a larger loan in order to have a new well drilled away from the foundation, and the sellers are often unable to for financial reasons.

As agents we are stuck because the buyers ask to see a property that turns out to have a well pump room, and we have to tell them it probably will not go FHA unless they or the seller pays for a new well.

jeff great point,

I can hear what you are saying when FHA loans are more stright forward and 82% will be paid on a claim to the lender in the event of a homeowner's default. While Conventional loans that adhere to more strict underwriting policy make it a bit more risker to get.For someone with only 5% down this days.

MARTHA.... . bingo... it's all in how you present the offer.... we could use more realtors like you... both because of your professionalism, attitude, and thinking outside the box. Even in times when conventional was more popular... that is a great track record. Maybe you should share some of your thoughts and secrets on how to overcome agents and sellers fearing FHA loans? thanks for your feedback.

JAMES..... . sure, it was easier to get seller help back in the day, when there weren't as many appraisal issues. But it can still work... about 90% of my borrowers all get some type of seller help, one way or another. As Martha above you stated, it's all in how you present the offer and talk to the agent... this can still be done now, in today's market... especially if the seller really needs to sell. Besides, in some areas, values have leveld off and have come up a tad.

MELISSA..... . hey, thanks for stopping by anyhow and for commenting... and for the polite compliment.

TOM.... . yes, it comes down to explaining and educating... and as Martha Brown above you stated, in how you present the offer or the deal.

MORGAN...... . I am aware of Manhattan and several other areas... and I wouldn't expect FHA loans in that area... as you stated, so many co-ops and you need 20% down in most cases... that makes it tough... thanks for your input.

DONNE...... . you make some excellent points... and the main theme is just educating people. Yes, some are just lazy or stupid... and it takes people like you and I to educate them more. It will turn around....

In regards to the 203-k loans.... in reality, it really doesn't take any more time to do a 203-k. Not if you are working with a true mortgage professional, who also has staff on hand and an underwriter that knows how to do these kinds of loans. We can typically turn these around in 30 days, as long as we get the buyer to get all their ducks in a row.... thanks for your feedback...

JAN

Jeff,

A very good and interesting subject matter for a post. Like you, my loans fall however they may fall based on what is best for my client whether it be conventional, FHA or otherwise. The mortgage industry has undergone dramatic changes over the past 2- 3 years with more to come. I firmly believe there are some Realtors that have not changed with the times, embrace what they are familiar with or used to and some are destined through a mindset to exercise control of the entire transaction. Who knows....many reasons!

I will state unequivocally for borrowers with either a minimal or even a modest down payment that when conventional and FHA options are laid side by side, FHA will best serve the borrower. FHA is just not for the weak or first-time buyer.....it has more flexabilites for everyone, hands down. PMI coverage on conventional loans has become very restrictive and expensive that it been a big factor in bringing the FHA loan back into a prominence that it once had.

Sadly, I recently parted ways with a Realtor that I had a great track record with and also a great respect for. This Realtors referrals were a significant part of my business flow for a couple of years. I had a 95% closing rate with her. She wanted to control or influence virtually every aspect of my actions with the client. Ron, here is what you need to do thing.! She was good at what she did as a Realtor and how she handled her clients. She hated computers, technology. email, underwriters and processors. I finally told her enough was enough in that I didn't tell her to do her job and I certainly didn't need her to tell me how to perform my duties.

The reason I shared this experience is to illustrate that there are professionals, be they real estate or mortgage, that are locked into doing things the old-fashioned way or find it difficult to accept or imbrace the changing times.

Hey Jeff, good seeing you briefly last week. This post came up my google alert. Good post. I recently had buyers that took an FHA loan. Unless I'm confused with Fannie and Freddie and conforming loans. It is gov't backed. In 2008 up until the end of the year the loan could be up to $729,000 (increased from $417K) part of the gov't stimulus package. Then in 2009 the max went down to $625,000. I recently sold a coop for over $1M. I'm pretty sure it was FHA loan through Wells Fargo. It had to close by 12/31 to get the $729K. The buyers put a bigger down payment in order to get the $625K max amount backed by the gov't in 09. They got a lower rate than if they had to take a jumbo for more than 625K. My understanding is jumbo rates are much higher and not backed by the government. So wouldn't FHA be good for anyone who only needs a $625K or less mortgage? Am I mixing up FHA and conforming?

The one new thing that has come up recently for loans in NYC is that coops and condos have to have a Fidelity bond to cover theft from members of the board or the buildings managing agent.

I totally agree. It is one of the best loans out there. Most of the ones we close are FHA.

Thanks for sharing.

I am so late to this party...and I will read the other comments later. But, FYI, I NEVER set myself up as the authority on the money....I direct potential clients to several options for loan officers if they ask. I only want to know what they are qualified for, their comfort level with a payment and where they want to live and, in general terms, what they think they are looking for. I leave the rest to the other professional. We each have our area of expertise, and that's not mine!

JAN

Jeff, I think we would need more information to really base an opinion of the scenario you described in your post. I work with allot of home buyers using FHA Financing, and I have sold several Bank Owned homes to buyers using FHA Financing, however, there are many Bank owned properties out there that are in-habitable,

and regardless of the Fha Inspection not being as stringent as it was 4 or 5 years ago, there are bank owned homes that would not qualify, I did just read that FHA is or will be starting to allow funding on homes with out appliances, this will definitely help more FHA buyers purchase homes, It's just that most of them don't have the reserves to do the clean up and repairs needed. And if you are working with a Single Mom, she most usually doesn't have the where with all to emotionally embrace the repairs or work needed.

FHA loans were not existant in our market up until a last year. Now they have the market share and I think they are great. They do have more property requirements but you can work it out if you are creaative.

JAN

TERRI.... . I have heard of that before... I even had something similiar happen to a client of mine 4 months ago. That the seller didn't disclosre until 2 weeks into contract, that it was now bank owned... and the seller was also a realtor... very sad. These people should be banned from real estate. thanks for sharing that.

SUSAN..... . you are correct to say that there was misinformation out there, especially the part that so many say that FHA loans take longer... such a sad statement. Allowing 30 days is enough time, that's if the borrower was pre-qualed correctly to begin with. Besides, a 14 to 20 day settlement is not out of the question. In 2008, I did 5 FHA loans that were closed in less than 10 days...

DEBBIE..... . I am semi confused... you use to do a lot of FHA loans until things changed? I have been doing them since 1993 and since 2001, they have actually gotten easier. Less restrictive with several things, such as the appraisal issues. My opinion? Many loan officers from 2000 to 2005 used subprime and quick approved conventional loans because it was easier for the loan officer. Just my .02.

EMILY.... . in your experience, FHA loans took longer? You usually dealt with inexperienced loan officers or lenders then. Even my more difficult FHA loans don't take more than 30 days to close from start to finish. It all comes down to how you screen the borrower, asking the right questions, and getting the right documentation upfront. And I am not the only one that thinks this. I have seen some lenders take longer on easy conventional loans also... you also need a very good support staff.

FRED..... . I love educating and sharing the benefits... thanks for the polite compliments...

RAFEEG..... . I do agree with that statement, that it's usually the loan officer if things fall apart, and not the product. And I worked for a company before that I had to even educate the underwriter. That was very frustrating, in which I left that company in 6 momnths...

JAN

Jeff, as always good points to follow. I enjoy the three lenders that I work with because tey do their job and it allows me to do mine. I see alot of what you're talking about but not from me, don't have time to play lender.

Any offer from a qualfied buyer is a good thing and all parties would be doing everyone a favor by trying to make it work.

DARIN aka the unknown.... . I think many of us agree that we need to let each other do our own jobs. Hey, I don't mind a little advice from realtors when it comes to mortgages, but when they flat out tell buyers what to do or making it sound like they know what they are talking about.... get out of town. I definitely dislike the realtor who is also a loan officer. And as of lately, those that are dual in that matter and who have bashed me, have been wrong in their comments. I ask them for proof and they never come back. Very sad...

On another note, you are correct in saying that it's a partnership and that we all need to work together. Overall, thanks for the kind words and for the compliments.

BOB.... . that's good that you give them the positives of FHA... but to say that the property must be in good enough condition to pass FHA?? The appraisal is done on the same form as a conventional loan. There aren't to many differences now. The roof is a biggie, yes. But in all honesty, if the house wasn't in good shape and the buyers didn't have money to fix it up later, would you really want them to buy that house? Just curious, because I see so many talk about this, yet they tell me that they have the buyers best interest.

In regards to the FHA 203-k loans, this is something that needs to be looked into more. So many say that they take longer, and that's not true, if the lender knows what they are doing.

CHRIS.... . not sure what you mean by that. All costs are to the buyer, unless the seller is giving seller help. I would like to know in more detail in regards to what you mean. Sure, I have seen loan officers add stuff last minute, but nobody can make the seller pay for anything. Maybe lawyers got involved?

REBECCA.... . as I mentioned to you, if you have a FHA loan and then turned the house into an investment, you can still refinance it. In any case, thanks for the compliment.

BO.... . yes I do... and I love your statement/example. I use the mechanic one... I need to decide if I should have surgery on my spine, so I am going to consult a mechanic... look for a blog on this one. thanks

KEVIN..... . yes, it was a good time. I wish I had gone for the 4 days and not just one day...

GARY M. .... . it's great to have very good lenders that will even take the time to explain it to the other side. And thanks for the compliment.

I also choose to stay in my lane when it comes to my client's financial needs. I would much rather continue to hone my skills as a REALTOR(R).

JAN

Hi Jeff thanks for the your info and details. I agree, I'm in the Tacoma/Ft Lewis/McChord AFB, in Washington state - I've worked with many clients that had FHA and VA loans in our area they are no problem. I work with some great mortgage partners that explain the loans and help identify the one that will be the most beneficial for my clients; I also make it business to educate my sellers on the benefits of selling their home by offering the widest range of financing options.

I too have worked with many clients who went with FHA financing. I did not find it to be any more

difficult than the conventional mortgage and have begun to recommend my clients speak to

their lenders regarding the possiblility of going FHA. Must pursue all options to get the best for our clients.

YES?, Yes.

Thanks for the input.

JAN

Jeff, I agree that FHA is coming back into the market place with a vengence. All i hear now is FHA, but that is not bad. I am just now getting retrained in FHA. Your picture is the spitting image of a good friend of mine. You guys could pass for twins. Kevin is his name and he lives hear in Colorado. Keep making loans. "The new guy" Bill

JAN

Most of my buyers get FHA loans than conventional loans. I was beginning to think that was the norm. good post.

I have mixed feeling about this posting. On the one hand, I agree that agents ought not meddle in the loan process so long as the LO has the people in the best loan for them (and most LOs know what they are doing FAR more than agents). FHA loans are great loans. An agent that mother-hens a client to save more money down simply to change loan programs to something they technically cannot qualify for now may be breaking their fiduciary duties- if the people miss out on the house for them because of this it would be very tragic.

On the other hand, I was an LO for many years (technically still am) and find your bullet points wrong, at least here in New York. FHA loans require MIP for the 30 years and have higher closing costs while conventional loans have fewer fees and lose PMI at the 80% LTV threshold. FHA does have tougher appraisals and the process is absolutely longer than conventional here.

I could go on, I just think that those are small prices to pay for borrowers who qualify for FHA, so why deny it.

Hi everyone.... I still plan to answer every comment in this post this weekend.... and not here to single anyone out, but I did want to comment on J. Phillip's comment right now, so we can put some things behind us.... thanks

J. PHILIP...... . I don't have a problem when a realtor gives some opinion... but when they just flat out make decisions for the consumer, no matter if they are the seller or buyer, that is mortgage related... that's where I have a major problem.

In regards to your second part. My bullet points aren't wrong at all. When I write stuff like this and I am not sure of something, I investigate it. Later on, I will find you the HUD info and place a link in here. But in regards to the MI and MIP.... you listed MIP. There is MIP and MMI. The MIP is always there and only descreases when the loan is paid off. You do get a refund in 3 yrs or less if you refinance.

In regards to higher closing costs, again, that are your lenders. My closing costs are exactly the same on a FHA loan as they are on a conventional loan. Ask any true mortgage professional. Maybe the loan officers in your area are using that as an excuse, so they can make more money. FYI... I can do loans in NY and actually have 2 as we speak.

Getting back to your PMI verse MIP... it's PMI vs MMI... MIP is the 1 time mortgage insurance premium. MMI is the monthly mortgage insurance that is equivalent to that of PMI for conventional loans. And HUD changed this over 6 years ago, but MMI will fall off after the 78% mark also.

In regards to tougher appraisals... not by much, this has all been changed in the last 7 years or so. Again, you just might be dealing with non-aggressive lenders. And no, the process is not longer. I just closed a FHA loan in 6 business days and I am closing another in 5 business days, from start to finish. If you know what you are doing, you can close FHA loans on an average of 14 to 21 days. So you are also dealing with loan officers or lenders that just aren't equiped to do FHA loans... OR... they are brokers, in which in many cases, not all cases, they have to rely on and wait for that lender to underwrite their deals. We underwrite our own loans and close them in our name.

Overall, small prices or not... and I wasn't trying to pick on you here... I am glad that you bring stuff up such as what you did...but that is misinformation, more so because you are dealing with people that don't know what they are doing. Just my opinion, but your comment proves that to me... Especially when people state that FHA loans are more expensive and take longer. thanks for your input and feedback.

I appreciate the thoughts. If I have a good loan officer that can lead a client in the right direction I consider it a blessing. Too many are wishy washy because they have too many options. I just did a post about professionalism and listening to the right advice. It applies to lenders as well.

Thanks for sharing your professional advice!

JAN

The sooner more buyers, sellers, agents and mortgage consultants realize FHA is going to be our "bread and butter" for many years to come, the easier it will be to move inventory and put buyers in homes.

When a Realtor has a lender they trust, they should let the buyer and lender arrive at the right decision for the buyer. Even when the buyer has chosen the lender, it's still their call. As a Realtor, I see nothing wrong in asking the buyer if their lender worked out different loan examples, but that's about as far as I would go.

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