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Julia Fordtn…, Real Estate Pro in Phoenix, AZ

Is there anything a Buyer can offer to sweeten the deal if they are using an FHA loan requiring the the Seller to contribute 3% in closing costs?

Asked by Julia Fordtner, Phoenix, AZ Wed Jul 18, 2012

We're in a Seller's market right now and there are tons of cash buyer/investors gobbling up the 0-150K homes. An owner occupied offer from a real family is having a devil of a time getting their offer accepted. We still need an inspection and FHA loans are taking 45 days to close, I feel like my hands are tied.

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The best thing that I would do in your situation is to change your purchase price, equal to the dollar amount of the closing costs you expect the Seller to pay on your behalf.
0 votes Thank Flag Link Thu Jul 19, 2012
If the 3% is REQUIRED, this means the buyer is at the top of their capability and will be unable to respond to an appraisal issue. All issues will be deferred TO THE OWNER AT AN ADDITIONAL COST. 3% spells weak buyer who is unlikely to close and will leave the home owner with an appraisal residual. By the way, a introductory cover letter can have influence on occupant sellers, but rarely overcomes a financial handicap.
Your best course of action is to focus exclusively on investor owned, refurbished homes. These will have no appraisal issues, and if they do, the investor/owner has a $30,000 cushion to work with, unlike most resident owners and there is reason to believe the investor is ready to cash out.
Your buyers need to be decisive. If they need to see a home three times before thinking about making a contingency filled offer, there may be other issues in play. When they have proven themselves decisive, then consider 'A-List' strategies. You don't want to burn these options on a buyer who will get happy feet.
You are correct in understanding FHA buyers are at a disadvantage. Things that can help their situation are:
1. Don't buy at the maximum of their ability
2. Get rid of the 3%
3. Focus on the right seller situation
4. The universe rewards speed. Be first and be strong.

Best of success to you,
Annette Lawrence, Broker/Associate
Remax Realtec Group, Palm Harbor, FL
727. 420.4041

Chat with me:
0 votes Thank Flag Link Thu Jul 19, 2012
Yes, you can offer more than the listing price, nothing wrong with that!
0 votes Thank Flag Link Wed Jul 18, 2012
If the buyer has the cash reserves, then consider waiving the appraisal contingency.
0 votes Thank Flag Link Wed Jul 18, 2012

Many lenders can do the FHA loan in 30 days or less. Most sellers are going to prefer cash or conventional loans due to the stricter appraisal issues on FHA loans. The only way to make your deal more appealing is to have a higher price, lower costs the seller has to pay, and a little bit shorter close of escrow.

I know it is a frustrating market, but it will be worth it once you get a home and the values continue to climb.

Best Regards,


Ron & Brenda Cunningham
West USA Realty
Ron 602-499-0694

*** Recognized in the Phoenix Business Journal as "One of the Top 50 Realtors in the Valley"

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0 votes Thank Flag Link Wed Jul 18, 2012
If you have the funds to pay the seller contribution yourself, that would be ideal. Or you could offer to split the closing costs. You could make the earnest money non refundable at the end of the inspection period, waive the appraisal contingency, or increase the purchase price. These are all startegies that you will want to go over with you agent and lender to make sure they will fit in the structure of the loan, appraisal, and contract.
0 votes Thank Flag Link Wed Jul 18, 2012
My preferred lender can get the loans done in 30 days most of the time. As far as sweetening the deal about the only thing would be to raise the offer price if having the 3% is a must. It is better if you don't have to have the 3%.
0 votes Thank Flag Link Wed Jul 18, 2012
Hi Julia,

I have worked in the REO business for five years and I can tell you that if you are writing on a bank-owned/foreclosure, almost always the bank will prefer a cash or conventional offer to an FHA or VA. Why? Simple - the FHA or VA offer will be subject to stricter appraisal and property condition guidelines, possibly requiring the seller to make repairs, and they take longer to close. Bank sellers hate to deal with those loan products.

If you are writing on a short sale, sellers may still be wary of accepting an FHA or VA offer due to property condition requirements which could cause the short sale to fall through. Some agents will advise their short sale sellers to go the path of least resistance - go with cash or conventional.

I feel your best bet would be to go for the investor resale or regular resale. These are situations where the seller wants to make as much money as possible and doesn't care if the money is coming from a cash account or a bank loan. They are willing to wait, if it means more money, and may be in a position to make minor repairs to the property.

If you are writing on a short sale, go in with an escalation clause to give the seller security you won't bail if the bank counters at a higher price. If you are buying a regular or investor resale, make sure you add any seller concessions (warranty, closing costs, HOA resale fees, etc.) back into your offer price. Even better - wait six months and save some more money, that way you don't have to ask the seller to pay closing costs.
0 votes Thank Flag Link Wed Jul 18, 2012
By the way, FHA loans do not have to take 45 days. Our preferred lender gets them done in under 30 days all the time.
0 votes Thank Flag Link Wed Jul 18, 2012
You've pretty much highlighted the problems FHA buyers are facing. If you can somehow get rid of the closing cost contribution you'll have a slightly better chance winning the battle.

You may have some better luck as we get into August/September. The latest stats (just posted them on our site) suggest we'll be seeing more inventory as summer progresses and a slight downturn in the number of buyers.

I love to say you won't be facing as many investors, yet that is simply what we are faced with these days. I wish more home sellers considered the long term advantage of owner occupied homes verses pure profits but that is probably far too idealistic.
0 votes Thank Flag Link Wed Jul 18, 2012
The only thing a seller can do is make an offer above the asking price. However, the seller may not accept it if the price is subject appraisal.

I'm getting FHA loans closed in 30 days. Purchase loans are the priority on my office.
0 votes Thank Flag Link Wed Jul 18, 2012
Step one is get everything the lender needs into them early. A complete file closes quicker than one waiting for updates. Keep your bank statements and pay stubs handy.
Next, make an offer they can't refuse. If you’re asking for discounts and getting out bid, it's a seller's market. If you need the 3% in seller's paid closing costs, bump your offer to 3% over list to net the seller a full price offer. If similar homes are going for over the listed price, offer 5% over list with 3% back, or whatever your agent suggests.
Just realize that as a buyer needing a loan and a seller contribution you will have more difficulty than a cash buyer who won't have the same level of risk to the seller. It's not fun, but it's the current reality.
0 votes Thank Flag Link Wed Jul 18, 2012
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