Sellers, don't accept offers from a buyer with FHA financing. Wait, don't accept offers with VA financing. Wait, don't accept offers with conventional financing. Gee, you might as well wait around for a cash buyer.
FHA loans are not a bad thing. It could just be that your listing agent isn't familiar with FHA mortgages, or maybe had a bad experience once before, or that they are afraid that the house might not pass a FHA appraisal. In my opinion, I just think the listing agent is flipping a coin on your property and it could cost you thousands of dollars.
I have been hearing negative things about FHA loans since I first got into mortgages back in 1992. But what prompt me to write about this again was after reading a comment by Sally Cheesman in her post, Holding an offer hostage for a second pre-approval. Read Sally's comment : Listing agent denies offers with FHA & VA financing.
PS... make sure you truly understand about the difference between pre-approval letters and pre-qualification letters.
I wanted to point out two comments from a post comparing FHA loans and Conventional loans. And keep in mind, these 2 comments are coming from realtors defending FHA mortgages.
- Chris Olsen wrote this comment : Comment by Chris - He states that a seller accepted a conventional offer that was $10,000 less than his clients FHA offer.
- Karen Crowson wrote this comment : Comment by Karen - She states the bias opinions from other realtors.
Here are some false assumptions about FHA loans :
- Only for first time homebuyers
- for those borrowers with poor or bad credit
- for those with no money
- FHA loans take a longer time to process or close - FALSE
- FHA loans are more expensive, have higher fees and or rates. Again, False. Every mortgage lender has a profit margin, regardless of the type of mortgage. If someone is charging you more on a FHA loan, it's purely out of greed. Here is a good example. FHA fees and why I was charged more. Please read the 2nd paragraph.
- appraisers are more difficult on the appraisals. This comment is so 2002 and prior. Yes, this was sometimes an issue back in the '90s. But HUD changed the appraisel requirements about 7 years ago. (I would love for some appraisers to chime in here and I will post your answers.)
- If you have 20% down, conventional is the way to go. FALSE.... it depends on your credit score. Please read this. FHA Loans vs Conventional Loans - 20% down - A Rude Reality Check
- a lender that is asking for more information that you didn't expect, because it's an FHA loan. This is not always because of FHA, but could be because of specific investor overlays. Just keep this in mind.
Conclusion : Pick your realtors and loan officers wisely. We all should have the buyers or sellers best interest at hand, but this is not always the case. Is this negative? Yes, but it's the truth and it's reality. Just do your research carefully and keep the emotions out of your decision.
Overall, these negative comments from realtors about FHA loans usually come from old time realtors that haven't left the 90's, from those new realtors that don't know any better, or just from someone that heard a comment by another agent. You know, that trickle down effect. when someone gives their opinion as a fact, sometimes that other person listening will do the same. Just beware...
Solutions : If the property needs some work, or even major work, why not use a FHA 203-k loan. Here is some information on 203 k loans.
PS... I don't make any extra money by promoting FHA loans. My job is to make sure that the borrower gets the best type of mortgage out there that suits their needs and goals.
Sellers, fire your listing agent if they tell you not to take an FHA offer !!!! Just my opinion, but the agent could be costing you lots of money. Unless you just don't care about throwing money out the window, this is extremely poor advice that could be based on assumptions or just a bad experience.
Please read : FHA loans aren't a bad things and the reasons why.
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For more information on FHA loans, please go to this link. The FHA Expert
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors
Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc
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FOLLOW ME ON FACEBOOK
- FHA Loans - USDA Loans - VA Loans -
- Energy Efficient Mortgages -
- Conventional Loans - 203 k loans -
- FHA Home Loans - Mortgages -
Experience & Knowledge at its BEST !!!
Follow me on:
______________________________________________________________________________________________________________
For more information on FHA loans, please go to this link. The FHA Expert
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors
Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc
Since about 35% of all loans were FHA or VA in 2009 through 1Q 2010, it would be foolish not to consider an offer with an FHA loan. Why cut yourself out of 1/3 of the financing money?
But FHA appraisals are harder to pass and more particular (OMG I'm contradicting Jeff Belonger in writing, online. Deep breath, and continue). The most common write-ups are flaking paint, broken window glass, trip hazards, anything that looks dicey on a furnace or hot water heater, trip hazards, and the need for a roof cert showing 3 years of useful life. My area has a fair number of older homes in town and out on the farms, and I always bring the FHA guidelines to a seller. Good to get known issues fixed up front and be ready for an FHA appraisal ahead of time. I've had to adopt this practice after my listings that failed appraisals and having buyers who made offers and the seller wouldn't address the issues brought up in appraisal. One little 1800s house in Wayne was on the national register of historic places. Seller was limited in making changes, and the house lost two buyers on FHA appraisals until we finally got necessary approvals though historic sites to make the changes.
All that said, a good agent plus an experienced loan officer who can manage an FHA loan are far more likely to get a good outcome for both buyers and sellers.
Tisk, tisk, tisk!
Jeff you know FHA earned it's reputation!
It should have become extinct, like Oldsmobiles!
But, any agent disregarding FHA in today's realty should and probably will face personal extinction, the sooner the better!
Today's realty is that this is not your father's FHA!
Bill
We have listing agents telling their clients to not accept VA loans too! Bottom line is that some are afraid of the criteria for an old home that needs some fixing up...possibly repairs that the seller does not want to do. So in this case their not taking but cash/conventional with a lot of cash down. In the end conventional loans (lender) may place restrictions on the home as well if it needs repairs. Bottom line...like you said...they may as wait around for an all cash offer.
I'm in the business to think in the best interests of my client no matter if buyer or seller....and whatever loan is out there can be beneficial to both.
This is a tough market to begin with....and weeding out all possible buyers with stipulations and such is not a good thing...I will remember this one...
Good breakdown Jeff...more need to be apprised of the situations going on out there.
LESLIE... . you would think it would be common sense since FHA loans how become more popular in recent years. Especially since more buyers have less money to put down and for the fact that conventional mortgages cost more if your credit scores are under 700 or so. And funny about the Jeff Belonger long comment reference. Yes, many of my comments are mini posts.. lol But in regards to your comment that many homes need work, I added a solution to this post, also based on what Sally mentioned. The solution would be FHA 203k loans. Overall, I would agree, that between a good real estate agent and a very good knowledgeable loan officer, the deal can be done in many cases.
WILLIAM... . yea, I know your stance on FHA loans. But as you mentioned, it would be foolish for any agent to ignore FHA loans or VA loans. thanks
SALLY... . thanks for the comment, because I forget to mention a solution to some homes that might need some work... and that is using 203k loans. And I know that you all have more VA loans just because of the military presence around you. It just irks me when an agent makes up the mind of the buyer or the seller, especially when they might only assume the worst. thanks for your input.
My buyers are mostly either FHA or USDA I prepare my sellers for what type of offers they may get and let them know that a buyer may be asking for closing cost assistance its just the way the game is played in our market right now. I can't imagine why an agent would steer their seller away from a buyer with FHA financing unless they have multiple offers on the table and another contract is stronger in some way with a little more skin in the game! Thanks for educating us Jeff, you have lived up to your FHA Expert title. Great explanation Well done!
Great points Jeff. All offers need to be considered. There are reasons for turning some down, but just because they are FHA is not one of them.
I do think these are great points HOWEVER I must point out that all of my FHA loans have had appraisal issues in the last year. If it wasn't price, it was repairs.
MARILYN.... . that's great that you prepare your sellers... do you also know what to look for in many cases, if they were to receive a FHA buyer? Just curious... I think I will write about this later. And thanks for the kind words..
GABE... . I think for the most part, most offers should be considered... I guess sometimes it could be the market area and or the condition of the house. .. and how serious that the seller is in selling. And thanks for the polite compliment.
RENEE.... . ouch, that word however... ;o) Yes, I can see where repairs can be an issue. Hence if a realtors knows the major requirements, they could determine what needs to be done before showing the property. As I mentioned to Gabe, I guess it also depends on that specific market. I know some markets have many cash buyers... I think from reading some of your posts, that this has been true for most of the year, right? Thanks
Jeff
I find some agents do not know that the FHA Seasoning Rule was lifted. Also are there still issues with unauthorized garage conversions and FHA?
Good post, we have had several loans close this year that were FHA, yes there were issues in the appraisal due to repairs, but these were mostly where sellers were being difficult, felt they had already taken a low offer and now found the lender was demanding that certain repairs be made for the loan to fund. It all depends on the listing agent explaining and taking the client through preparing their home for sale correctly. Buyers today are more and more wanting move in ready homes with little to do following settlement.
This is a great post - these are so many misconceptions about FHA loans!
Jeff, I have done FHA loans since I started in Real Estate 20+ years ago. They have changed like everything else. I would never tell a seller not to accept a contract using FHA or VA financing. Are there things the listing agent should discuss with their seller when presenting these loans, of course. However, if you remove Government loans from the potential buyer pool for your sellers I think that has the potential to bring the price of the home down anyway. The more buyers, the more opportunity for your sellers too.
I think people that poo poo FHA and VA are just not very familiar with them and that is where the problems can start? IMHO, where I do business regularly.
Less than 5% of my buyers CAN use FHA.... they are not buying a primary home, but a second home in the market I work in, so conventional is the only loan they can use. I love FHA, but it's the rare buyer I have that can use it.
HELEN... . which seasoning issues are those? And when you say the unauthorized garage conversations, you mean? From my understanding, if you have the permits and that the garage was converted legally, then you are okay. It just comes down to the appraisal though, where it might be an issue. Meaning that depending on what it was converted into, that it usually won't add much value to the house. Overall, you can change most things with a house, it just comes down to having the permits and then a CO after the conversation. I am not sure, unless someone told you that you can't convert garages and have a FHA loan. thanks
NICK & TRUDY.... . excellent point... it all comes down to how the listing agent explains things to their seller(s). I have found give bad insight or opinions, which leads to all of this misinformation. And thanks for the polite compliment.
BARBARA JO... . yes there are... I even had a realtor a few months tell clients of mine that I had qualified them for a USDA loan that they were better off with a FHA loan. And this realtor came back and said, my loan officer even agrees. WOW. rut row.. this loan officer didn't even interview these borrowers, knowing such things as their goals, assets, and so much more... aaarrrggghhh Thanks for the compliment.
AUDREY... . wow, you must have started out as a realtor when you were 16 then. ;o) Yes, these agents just aren't familiar with FHA and or VA.. or they got some wrong information from their loan officer. Overall, you are an excellent asset to your clients because you don't tell them what financing offers to accept, but that you should be focusing on the best offer or what's best for them. thanks
TAMMY.... . point taken.. real estate markets are local and not all markets warrant FHA financing... but overall, just some things that need to be mentioned to keep some on their toes. thanks
Jeff, sorry I wasn't clear. The FHA Seasoning Rule is the FHA 90 Flip rule that was lifted in February on HUD homes. And the "unauthorized garage conversions" are unpermitted or incorrectly permitted garage conversions into living space. Thank you for another great post.
Doesn't the FHA funding fee increase the buyer's closing costs making the FHA loan a tiny bit more than a conventional loan?
HELEN.... okay.. and one needs to be careful about how much that property is being sold for. There is a 20% cap on it... and now that makes sense about the garages. Yes, if they don't have permits and or CO's. thanks and my pleasure... thanks for the support.
MAYA.... In my opinion, no... but it does come down to the credit score and the down payment. I try to write a post once every 3 months comparing FHA loans to conventional loans. Giving difference credit scores and down payments. This will show which way is better... and in many cases, if your credit score i below 680 and you are putting down 10% or less, FHA will usually be better for you. I even wrote about the fact that even with 20% down and a credit score of 620, that FHA was better. You also have to remember that you will have PMI issues from the PMI companies, especially when putting 5% down. Here are a few comparison posts that I wrote.. thanks for asking..
FHA Loans vs Conventional Loans - Why FHA home loans in New Jersey can be better with 5% down - with 5% down
FHA Loans vs Conventional Loans - Things you should know about even with 10% down - 9-19-09 - with 10% down
There are no bad loan types, only unqualified buyers. When the two merge, agents will often come to the incorrect conclusion that the loan type was the problem.
Jeff,
If it wasn't for FHA loans, few of my sellers would ever have a deal! I can't imagine dismissing an FHA buyer in these times.
LENN.. . I totally agree... many agents will just go off of their bad experiences, which is just bad when giving advice to buyers.
IRENE... . unfortunately, some realtors do. Now, I can understand if the property is a mess, and would have a problem with a FHA mortgage. But if it's just painting issues and such, then it should not be a problem. Anything great, the buyer could still use a 203-k loan. I had a realtor once tell me to switch the buyers qualification from a FHA to a conventional loan.. the reason was because the foundation would have not passed FHA. What? And the buyer doesn't even know this... I said no way and that realtor would not let me back in her office ever again.. it's a shame.. thanks
Jeff:
Here in the San Diego market --FHA & VA loans are not popular. If the property is hot and the agent has received 10 or so more offers the FHA & VA are not given consideration. We have been getting a ton of cash being infused into our local market. Most agents go with the deal they feel is the least amount of effort to close.
Jeff are there still VA no's no's out there in the world?
Thank goodness there are 2 titles for this! REALTOR.......LOAN OFFICER. I do my best to be a good agent and refer the loan questions to my Loan Officer.
FHA loans make up such a huge percent of the market - why would you exclude those buyers? In my area, where the average home price is in the neighborhood of $400,000 - not many first time buyers have $80,000 in savings and, with current home prices, lots of sellers don't have $80,000 in equity in their current home to put towards their next purchase.
LORRAINE or LORETTA.... . well, that would make perfect sense why some loans might not be popular if there are many cash buyers. In regards to your VA question, asking if there are VA no-nos still out there, I don't follow that question. Could you be a little more specific? thanks
SHERRY... . I think that is a good position to take. I just find that there are still realtors out there that tell the seller what offers to accept and what not to accept. And it could hurt the sellers in some cases.
LORI... . that was the reason for this post.. why would a realtor jeopardize a listing if a FHA offer came in? In my opinion, in some cases, it's because of what the agent thinks they know or heard, when it could be wrong or misleading information about that particular loan. thanks
Great post Jeff. As a mortgage industry veteran and now a Real Estate Broker I must say that there is a stigma in the community toward FHA financing. It is a huge part of the market today and its influence is unlike anything I have witnessed (I did my first FHA loan in 1993). It is going to be a big part of the housing recovery. Agents need to seek out knowledge with respect to FHA financing and gain the proper perspective regarding FHA loans and the evaluation of offers where it is present.
Jeff: I can't imagine a world right now without FHA loans. I think we'd all be in the poor house without them!
DOUG.... . I love hearing from other loan officers and or ex-loan officers and get their perspective on what I write... so thanks. My first FHA loan was in the middle of 1993.... overall, I couldn't agree with you more and I wish more real estate agents would view your opinions to the fullest. And thanks for the polite compliment. Just curious.... how did you happen upon this post? I wrote this post like 10 days ago and just in the last 48 hrs I have received like 7 new comments... thanks
AARON... . I think many of us would be in the poor house and I think many borrowers would still be renting. thanks
Jeff - I subscribe to your blog and was going through my subs yesterday. I read, agreed and commented. Have a great day. ~ Doug
As a listing agent, perhaps it is because I am so familiar with getting my buyers financed with FHA financing, and having it go smoothly, that I DO advise my sellers to accept a buyer who will be financing using FHA financing. It is an excellent way to finance. I cannot remember the last time I had any major problems with it.