If you understand how an FHA loan works, there's no reason to be afraid of accepting an FHA loan based offer:
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" AppraiserI'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 "a 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 fallingThe 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 MundtMortgage Originator - NMLS #216987 - IL Lic. #031.0006220 - WI LicensedAmerican Portfolio Mortgage Corp.NMLS #175656Direct: 815.524.2280Cell/Text: 708.921.6331eFax: 815.524.2281
Mortgage Originator - NMLS #216987
IL Lic. #031.0006220 - WI License #216987
Gene Mundt, Mortgage Originator, 40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking: #Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in #Chicago and the greater Chicagoland region, including: The #Lincoln-Way Area, #Will County, (#New Lenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Romeoville, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of Chicago, #Cook County, and elsewhere within IL and Wisconsin.
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