Seth Chalnick

While it's true you are competing against cash and conventional offers on a technical level... on a fundamental level, you are really in competition with the government and the banks, who are holding inventory off the market. When the banks foreclose, the loss is realized on their books, their stock prices decrease, and the amount of regulation increases. Further if they put all the property on the market at once, the real estate prices would decrease and it would further decrease the banks' stock prices. This also subjects the banks to increase their capital reserves, which puts further stress on their stock prices. The government is trying to turn the economic ship around, so they are allowing the banks to refrain from further crashing the markets.

Until this artificial short supply of inventory is normalized, sellers will have the pick of the litter, and, all else being equal, you will never win against an offer with more cash down. So, if you are determined to buy a home now, you will need to treat it like a number's game, and find a property that cash buyers do not want as much as you do.

Sometimes, a seller has the need for a buyer to put up with some quirky thing or other and this barrier may be just enough to scare off cash down buyers, and then you will be left to compete against the other FHA buyers. In this case, following the advice the agents present below is critical, and you will flat out definitely need to pay your own closing costs, because there will be other FHA buyers who can do this too. This is critical because the home will only appraise for just so much. If you're asking for closing costs, then this figure will cut into the seller's bottom line. The value cannot be even remotely inflated to accommodate your cost, because the comparable sales are likely lower than the price you are willing to pay. There are some other ways to get bids accepted these days, but none without significant headaches.

Though the low rates, and $8k tax credit make long term buy and hold strategies pretty attractive if you can find the inventory, you can take solace in the fact that prices will decrease significantly once more inventory inevitably hits the market and when rates inevitably increase. - Wed Dec 16 2009, 12:46