Selling Your Home? Should You be Leery of Accepting an Offer from Buyers Approved for FHA Financing?

By
Mortgage and Lending with NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 IL Lic 031.0006220/WI
https://activerain.com/droplet/5gmG

 

 

Selling Your Home?

Should You be Leery of Accepting an Offer from

Buyers Approved for FHA Financing?

 

It's not unheard of to hear my Borrowers (and their Agents) say that Sellers are expressing a leeriness about accepting offers from FHA  Buyers ... 

 

Typically these Sellers' uneasiness is based on rumors and stories they've heard about the difficulty of passing an FHA Appraisal.  They think they'll be required to make their home "right for FHA Financing".   
 
The prevailing thought is typically that FHA ... or the Lender ... will require that they complete a long list of repairs prior to Closing.  That they as a Seller will need to get their home in FHA "financeable" shape and that the cost of doing those repairs will be all theirs to shoulder.
 
I can tell you, having once fulfilled the role as an FHA-Approved Appraiser (and now as a New Lenox - Will County - Chicagoland - IL/WI Mortgage Originator), that I've always felt that those fears were a bit unwarranted by the real estate community and the selling public.  In many cases, any issues, if raised by an Appraiser, can be addressed reasonably easy.  

It's been my experience over the years, that the property issues found below are those categories most often raised by FHA Appraisers:
 
  • Peeling paint:  Was and still is an issue for homes built before 1978.  (Lead was used in paints until the year, 1978.  Lead poisoning is a health concern/issue.) 
  • Certifications Required:  Certifications for Roofing, Heating, Plumbing, Electrical, Structural Contractors were most often requested. (Functionality of "major components" of real concern as determined by the Appraiser of Record)
  • "Nit-Picky" items:  Items determined by a so-called "nit-picky" Appraiser
 
I've found that the mindset of FHA has always been and remains:  If a homebuyer moves into a home and finds themselves having to deal with health hazards, major repairs, or replacements soon after Closing, it could cause the Borrower great financial stress.  It could result in a default on their mortgage.  It could preclude a Foreclosure. 
 
FHA doesn't want that to happen.  They also don't want to be the "cause" of that happening to anyone.  Common sense will tell you that.  It hurts the Borrower and them as well. 
 
FHA does believe that a certain level or standard of property "fitness" should be met.  But their requests for property repairs are often seen as unreasonable.  That they place hardships on Sellers.  

As a result, Sellers oftentimes object to accepting FHA Financing on a Contract - even when the requests by FHA Appraisers for repair(s) are justified.  Their rejection of an FHA Financing offer can, in turn, create roadblocks to Contract completion ... or undue hardships on their prospective Buyer.
 
In one a recent transaction, I was assisting Borrowers where the Sellers of the property they hoped to buy insisted on Conventional-ONLY Financing.  Due to "credit issues" the Borrowers involved were subject to what in financing is called "Waiting Period after a Significant Event".  Their loan application could have been approved with FHA Financing terms, but the waiting period in play created a hard stop for a Conventional Loan with "normal" terms and rates. 
 
In this particular case, the Sellers were NOT willing to accept the offer made by my Borrowers with FHA Financing.  That decision, in turn, kept their property on the market.  
 
Why did the Sellers make that decision?  
 
The Sellers were unwilling or unable to "expose" themselves to an FHA Appraisal.  They didn't want to face any possible demands for FHA repairs or conditions interjected by an Appraisal for FHA Financing purposes.  
 
Were their fears warranted? 
 
What, in actuality, in today's current market, do FHA Appraisers typically require?  What repairs do they typically demand be made? 
 
Unfortunately, there is no one definitive resource that provides an answer.  Even FHA handbooks and publications themselves offer somewhat vague direction.
 
The stance by FHA in recent years has been to move the responsibility to the Lender's Underwriter and the Lender's assigned Appraiser.  They must determine the repair needs of a given property.  The days of ordering certifications and other costly unwarranted repairs on an FHA Appraisal are pretty much a thing of the past.  
 
While it must be pointed out that every housing market varies ... and every Appraiser's stance also varies ... FHA Financing does NOT have to be viewed as a "deal killer".  

For the most part, HOME INSPECTIONS have taken the guesswork out of the FHA Appraiser's "to do list".  The role of the Appraisal should now be viewed as more of a "Value Protection" for both the Buyer and the Lender.
 
For deals to die on the vine over long-standing old-school mindsets surrounding the negatives of FHA Financing, was/would be unfortunate.  Those of us that must know what an FHA Appraiser will require regarding appraised properties, should keep "safe, sanitary, and sound" in mind as our rule-of-thumb in these instances.  
 
Below I've included an example of a case where the sellers DID comply with an FHA contract and resulting Appraisal.    Here is the verbiage included in the FHA Appraisal and what was required by the FHA-Certified Appraiser involved during that transaction:  
 
     "The Subject was built prior to 1978 and thus there is a possibility of the existence of lead-based paint in the home."
 
  • Evidence of cracked and peeling paint was found at the time of the inspection on almost all surfaces of the exterior of the home, garage and the shed
  • Home requires exterior scraping and re-painting on nearly entire exterior siding, trim, and soffits
  • Shed, garage, and house exterior also show minor signs of wood rot
  • The Shed was locked at the time of inspection.  A re-inspection will be required to view shed interior
  • The patio is dug-out of the original grade and has three perimeter walls surrounding.  All perimeter walls present falling hazards and exceed 36 inches in height.  A full-surround safety railing is recommended to prevent accidental falling
 
The above showcases the Appraiser's method of reasoning and prevailing mindset regarding the current safety and soundness ... the "fitness" of the property being viewed.  It also provides a prime example of how FHA deals can close when the Seller keeps an open mind.   
 
As that is just what happened.  The Sellers made the required repairs quickly and relatively easily (and inexpensively) and kept their transaction moving forward to successful completion.  The desired result ... a SOLD home ... was achieved.
 
Each Seller must determine their own transaction's path and destiny.  The best outcomes ... the quickest sales are found when all options are left on the table and considered fully.
 
I say that ... in appropriate situations and in more challenging housing markets, those options should include the consideration of accepting a Buyer making an offer with FHA Financing ... 

 

 

* When in need of Mortgage info or service when buying, refinancing, or Investing in a home in New Lenox - elsewhere in Chicagoland - IL & WI, contact me. I'll be happy to put my 40+ years of mortgage experience and expertise hard to work on your behalf.
I'm easily found at:


 
Gene Mundt
Mortgage Originator - NMLS #216987 - IL Lic. #031.0006220 - WI Licensed
 
American Portfolio Mortgage Corp.
NMLS #175656
 
 
Direct: 815.524.2280
Cell/Text: 708.921.6331
eFax: 815.524.2281
 
 

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Gene Mundt

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Fred Griffin 11/30/2018 03:11 PM
  2. Gita Bantwal 12/10/2018 11:00 AM
Topic:
Home Selling
Location:
Illinois Will County New Lenox
Groups:
Realtors®
Mortgages
Chicago Area Real Estate BUZZ!
Bananatude
WillCounty
Tags:
fha
real estate contracts
fha appraisals
financing options
home sellers
fha financing
fha appraisers
fha lenders
fha buyers
mortgage advice and tips

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Rainmaker
4,967,280
Roy Kelley
Realty Group Referrals - Gaithersburg, MD
Roy and Dolores Kelley Photographs

This is excellent advice to share with home sellers, home buyers and their agents.

Dec 06, 2018 11:10 AM #22
Ambassador
2,898,459
Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

Another myth dispelled by Brother Gene! 

Seriously, it's really sad that agents perpetuate this myth, isn't it? I hear it all of the time - and the same with VA loans. Were they difficult in the past? Yes but, times have changed and agents need to properly educate their sellers (AND their buyers) appropriately!

Dec 10, 2018 09:31 PM #23
Rainmaker
2,668,039
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Thanks for cleaning up the myth.Though there are some people who just have a suspicious vibe about them. it has nothing to do with FHA at all though certainly.

Dec 10, 2018 11:30 PM #24
Rainmaker
2,668,039
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Debe Maxwell, CRS Some people in business tend to have predatory personalities. Real estate can be one of those places, but most of my experience are people of excellent character, Thank goodness.

Dec 10, 2018 11:34 PM #25
Rainmaker
576,917
Debra Leisek
Bay Realty,Inc Homer Alaska - Homer, AK

Another wonderful article by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi 

We do a lot of  FHA Loans and RD and VA and AHFC the more initials the more hoops but really all very doable. Years ago the requirements were more extensive but these day they allow a lot of folks to buy a home of their own!

Dec 10, 2018 11:57 PM #26
Rainmaker
1,901,146
Andrew Mooers | 207.532.6573
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

The best financing fit for the propety needing a mortgage. The borrower's good bad and ugly on the credit, debt ratio and financial end. The issues a low or no down loan program can not tolerate. It is a delicate cocktail mix that can go down smooth or things go sideways to derail the sale. Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi is your professional  at the helm of the financing end of things to help figure out the best course each unique real estate situation needs. He'll help connect the dots. The repairs, if seller says no way, if the buyer pulls out both empty pockets... is the agent or broker going to do the updates and subsidize the deal to make it fly?

Dec 11, 2018 03:46 AM #27
Ambassador
1,514,625
Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

I haven't done tradtional listing in a long time but over the years FHA has sttreamline the process and one shouldn't fear it or the appraisal process.

Dec 11, 2018 04:20 AM #28
Rainmaker
402,646
Tom Bailey
Margaret Rudd & Associates Inc. - Oak Island, NC

I’m sorry to be the fly in the ointment here, but I am not a fan of FHA loans for sellers. I try my best to have my clients price their property correctly based on it’s current condition. I don’t discourage sellers from considering offers from FHA buyers. I make sure when deciding on an offer from an FHA buyer, that my sellers know they may have to spend some money on things they might not have have to with other lenders. I am not negative to my sellers, but I always think to myself this is going to be a pain in the ass

Dec 11, 2018 04:22 AM #29
Rainmaker
402,646
Tom Bailey
Margaret Rudd & Associates Inc. - Oak Island, NC

Gene, I also think it is incumbent on buyer’s agents to make sure our FHA clients know to avoid properties that need a lot of work, and are priced accordingly 

Dec 11, 2018 04:32 AM #30
Rainmaker
337,477
Matthew Klinowski, PA
Downing-Frye - Naples, FL
Golf Community Real Estate Specialist

Gene, this is good information to help educate buyers and agents using FHA loans. Unfortunately in our area we often have investors willing to pay cash at the price point most people are using FHA loans and buyers have a tendency to go with those offers if they are similar. I encourage my buyers to take the best offer. Thanks for sharing this information. Have a great day.

Dec 11, 2018 05:18 AM #31
Rainmaker
4,637,364
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Excellent information, Gene.  I will save this and potentially use it if I get some pushback for an FHA loan.

Dec 11, 2018 06:03 AM #32
Rainmaker
3,047,345
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hello Gene - your post is quite educational. Our market hasn't always been "kind" to FHA/ VA financing because of multiple offers with perceived better financing terms. It will be interesting to see a change in attitude on the subject as market shifts occur.

Dec 11, 2018 06:35 AM #33
Rainmaker
1,025,565
Margaret Goss
Baird & Warner Real Estate - Winnetka, IL
Chicago's North Shore & Winnetka Real Estate

This post was very informative for me since I've never done an FHA loan. But that doesn't mean it won't ever happen and you've cleared up the confusion regarding this very important tool.

Dec 11, 2018 09:48 AM #34
Rainmaker
133,021
J Perrin Cornell
Century 21 Exclusively, Wenatchee, WA - Wenatchee, WA
Broker, ABR, VAMRES

Afraid of FHA why??? Kinda like chicken little. First anything that gets called out on an FHA loan, a good, not even good, just decent home inspector will find too. DUH. Next, it is another way to sell to a segment you might not otherwise reach. Finally, I thought our job was to sell property if so buypassing one of the oldest types of loan in the market place just does not make good sense. If you are listing and have your wits about you most FHA deficiencies you can see and prep your client for.  

Dec 11, 2018 02:50 PM #35
Rainmaker
256,460
Elisa Uribe Realtor #01427070
Golden Gate Sotheby's International - Oakland, CA
California Homes for Sale in the East Bay

Great post Gene! Definitely worth sharing to my buyers and sellers, congrats on the feature!

Dec 11, 2018 03:59 PM #36
Rainmaker
455,802
Bruce Kunz
C21 Solid Gold Realty, Brick, NJ, 732-920-2100 - Howell, NJ
REALTOR®, Brick & Howell NJ Homes for Sale

Thanks for sharing this helpful information Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi. I think most seller & buyer fears (and i guess agents, too) are based on "rumors & stories they've heard" rather than facts. Your thorough information should help calm some nerves for sure!
Bruce

 

Dec 11, 2018 07:21 PM #37
Rainmaker
332,421
Trent Dalrymple (248) 854-0625
Texana Bank - Bloomfield Hills, MI
Helping Mortgage Professional's Lend Nationwide!

Great post Gene.  If it wasn’t for FHA, we’d be tripping on our stairs due to improper rise, along with many possible other home construction issues

Dec 11, 2018 07:24 PM #38
Rainmaker
1,439,117
Beth Atalay
Cam Realty and Property Management - Clermont, FL
Cam Realty of Clermont FL

This is a great post Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, FHA is common in my marketplace and I do my best to educate the sellers on it at the time of listing. Recently, I had a pretty bad experience with an FHA Appraiser, needless to say, we had to put the home back on the market which went under contract the same day and closed now with a conventional loan. Not every FHA appraiser is the same. Luckily, most go very smooth.

Dec 13, 2018 06:41 AM #39
Rainer
4,312
Joshua Lother
Gwen Fowler Real Estate - West Union, SC
Real estate pro serving the Golder Corner

Great article. I haven't experienced any direct resentment over FHA or VA loans yet, but I have seen that when thrown in the mix with other loan types, they are considered less if the actual offer amounts are similar. 

Dec 13, 2018 11:31 AM #40
Rainmaker
373,377
John Wiley
Right Move Real Estate Group- EXP Realty - Fort Myers, FL
Lee County, FL Real Estate GRI, SRES,GREEN,PSA

Thanks Gene for an informative post on FHA financing.

When I search properties for a client, it is not uncommon to see the listing agent state on the MLS that only cash or Conventional financing will be considered.

When I see that, the first thought in my mind is that they know of issues that would not pass FHA. If my client is not looking for a fixer upper, I generally go on to another listing.

We do need to know what the buyer is looking for.

Dec 14, 2018 09:48 AM #41
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Rainmaker
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