Most of my first-time home buyers are using FHA financing, taking advantage of the 3.5% down payment and attempting to close in time to receive the $8,000 federal first time home buyer tax credit (which is available until 11/30). They have heard it is a buyer's market and a great time to buy. While it is definitely a great time to buy, we are beginning to see situations we haven't seen since the housing boom. Many of the homes I am showing to them in their price range are bank owned homes, due to the prevalence of foreclosures in the suburbs (I am finding this mostly in Reston/Fairfax/Alexandria). I am finding that the listing agents of these properties are intentionally drastically under-pricing these homes in order to create interest. Within 2 days of being on the market, these homes are receiving as many as 35 bids (the highest number I have encountered thus-far). Though my buyers are offering list price - and oftentimes far above list price - they are not being considered by the banks because they are using FHA financing. The banks are taking lower offer prices over risker financing. So, even though an investor may offer $15,000 less than my clients, if he can pay cash, he is winning the bid.
If you are looking to buy a home, keep in mind that while it is a great time to buy, you should be prepared to compete for the choice houses and the best-priced houses. In competing, remember that cash is always king, followed by conventional financing with a significant down payment. FHA is tricker because the buyers are being approved with a lower measurement of risk and the homes they are purchasing must meet higher standards. FHA also has an open-ended appraisal contingency that extends the entire period from contract to closing. This leaves the seller vulnerable to the contract falling apart with little recourse to them. The stronger your financial position, the stronger your offer.
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