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

Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

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:

Sq Ft
List Price
Sold Price
Price/Sq Ft



$ 6,013
$ 8,476
$ 5.10

***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
Tutas Towne Realty, Inc
Licensed Florida Real Estate Broker


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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Nathan Tutas 11/19/2009 09:52 AM
Home Buying
Florida Osceola County Kissimmee Poinciana
fha loans
usda rural housing

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Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

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. 

Nov 17, 2009 09:10 AM #5
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL


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


Nov 17, 2009 09:29 AM #6
Stephanie Reynolds
Integrity First Financial Group, Inc. - Santee, CA
East County San Diego Homes 619-838-4408

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.

Nov 17, 2009 09:29 AM #7
Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

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

Nov 17, 2009 09:41 AM #8
Paula Swayne
Dunnigan, Realtors, Sacramento (916) 425-9715 - Sacramento, CA
Realtor-Land Park, East Sac & Curtis Park -Dunniga

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.

Nov 17, 2009 11:33 AM #9
Kathleen Cooper
Kathleen Cooper, Sposato Realty Group - Worcester, MA
Sposato Realty Group - Broker Owner

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.



Nov 17, 2009 12:14 PM #10
Melina Tomson
Tomson Burnham, llc Licensed in the State of Oregon - Salem, OR
Principal Broker/Owner, M.S.

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.

Nov 17, 2009 12:26 PM #11
Nathan Tutas
Tutas Towne Realty, Inc. - Davenport, FL
Your Central Florida Real Estate Expert

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.

Nov 17, 2009 01:09 PM #12
Lisa Hill
Florida Property Experts - Daytona Beach, FL
Daytona Beach Real Estate

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.

Nov 17, 2009 03:02 PM #13
Stephen Kappre
KW Hometown - Mantua, NJ
Helping You Home

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 17, 2009 03:43 PM #14
Dick and Dixie Sells
Sells Real Estate, LLC - Trinity, FL
Realtors, Tampa Bay Florida Homes For Sale

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.

Nov 17, 2009 09:17 PM #15
Allison Stewart
St.Cloud Homes - Saint Cloud, FL
St. Cloud Fl Realtor, Osceola County Real Estate 407-616-9904

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

Nov 17, 2009 09:21 PM #16
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

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.

Nov 17, 2009 10:41 PM #17
Bill Saunders, Realtor®
Meyers Realty - Hot Springs, AR

Hi Bryant and all...

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

Nov 17, 2009 11:46 PM #18
Herb Hamilton
RE/MAX Preferred Inc. Realtors - Portland, OR
Real Estate Broker ,CDPE, Downtown Portland


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.

Nov 18, 2009 01:14 AM #19
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

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

Nov 18, 2009 03:00 AM #20
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

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...

Nov 18, 2009 11:15 AM #21
Richard Weisser
Richard Weisser Realty - Newnan, GA
Richard Weisser Retired Real Estate Professional


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

Nov 18, 2009 01:48 PM #22
Dave Jones
Dave Jones Realty, llc. - Prospect, CT
Broker/Owner - e-PRO Dave Jones Realty llc Prospec

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 19, 2009 02:58 AM #23
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

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!

Nov 22, 2009 04:08 AM #24
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