Home Buying in San Jose>Question Details

lssb05, Home Buyer in San Dimas, CA

We are preapproved for FHA loan. Even when we are the highest offer we still don't get the property because of FHA. What options do we have?

Asked by lssb05, San Dimas, CA Wed Jun 26, 2013

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15
Hi Iss and thanks for your post.

I want you, first, to take comfort in the knowledge that you are NOT alone in this battle to find a great home. Whether you're using an FHA loan or a conventional loan, with so few homes on the market and a housing outlook that doesn't appear to be more favorable for the summer, unless you are a highly qualified buyer willing to pay as much as 25% OVER the asking price while also removing ALL contingencies and promising the world's fastest close, it's going to be difficult to find and buy a home right now. It's become so frustrating for buyers that many are simply "giving up" for now, with the hopes that they can return to the market when the interest rates increase or when more homes come on the market.

While I can appreciate Javier's views, unless you work in California, it's hard to understand the overwhelming demand for homes here and the lengths to which most buyers will go to secure the property. A large majority of the homes are still sold primarily to all cash buyers or buyers who have as much as 50-75 percent to put down on the home and can afford to remove every contingency with their offer. Even with 50 percent down payment, many of my buyer clients are still having trouble keeping up with the other buyers who can afford larger down payments, swift closes and no contingencies.

It is a tough market out there, Iss. Your FHA loan does make it harder since in the "pecking order" of what is considered the "strongest" offers today, a "regular" offer with a modest down payment and contingencies is at the bottom of the offer pile regardless of the sales price offered.

Right now, unless we have more sellers enter the market--and most are reluctant to do so unless they are moving OUT of California, the situation for all buyers is likely to be tough and tougher. Try "For Sale by Owner" sites like http://www.forsalebyowner.com and, if your agent is HUD qualified, check the HUD sites for possible available homes.

Good luck!
2 votes Thank Flag Link Wed Jun 26, 2013
I love the way Grace answered your question, she is very knowledgeable. The only option I see for you is buy something that is New.if you can qualifying that is your best bet. It really is a tough market out there, I've had success with purchasing new homes and town homes.
That is an options for you.
If you have any questions feel free to contact me.
At your service,
Allyson
408-705-6578
allyson@homesbyallyson.com
Certified Distressed Property Expert
1 vote Thank Flag Link Wed Jun 26, 2013
And I gave been an admirer of your answers for years, Allyson!! Thanks for the kudos.
Flag Thu Jun 27, 2013
Not fact, maybe in your market though. Buyers here in CA are waiving appraising contingencies in order to compete with the market conditions. Very few FHA buyers can do this. Buyers will make up the difference in a hot market. I'm not referring to loan guidelines, I'll talking about having the necessary funds to close the deal regardless of appraisal value.
1 vote Thank Flag Link Wed Jun 26, 2013
First recommendation would be to work with the strongest agent you can. Some of the greatest value an agent has for a buyer is helping the buyer have a winning purchase offer.

Second recommendation would be to have your agent go after new home developments. The builder probably already knows if FHA loans will be issued on his homes.

I've represented buyers and have gotten them homes while competing against all cash offers and nearly all cash offers even though my clients borrowed heavily. There isn't a simple guaranteed formula for winning. Diligence and experience help immensely.

San Jose real estate information at http://julianalee.com/san-jose.htm

Juliana Lee
Top 2 agent nationwide at Keller Williams Realty, the nations largest
Cell 650-857-1000

Over 20 years experience
Over 1,000 homes sold in Santa Clara County and San Mateo County
.
Web Reference: http://julianalee.com
0 votes Thank Flag Link Thu Jul 4, 2013
It depends on what type of property you are bidding on, plus your cash reserves. If you are bidding on condos, many are not FHA approved and the FHA buyer will not be considered. If it is a single family home with certain conditions, non-permitted living conversions, power tower within fall line, pealing paint, visible repair issues, and missing appliances, those agents will also pass on FHA buyers.

Now let's get to the properties which would qualify. The issue is the appraisal. If you have "gift" funds from a parent and are willing to make up any appraisal difference, then you may have a chance. I had a buyer able to do that in December. They had to bring 5% more to closing.

You may want to look at properties which have been on the market for a while, perhaps over priced and give that a try.

What does your agent tell you?

Good luck, you are not alone.
0 votes Thank Flag Link Fri Jun 28, 2013
Im happy to congratulate you on having the wherewithal in being prepared in as much as you can be. My FHA buyer wasn't preapproved . The entire time up to now Ive been stressing "if this falls through" syndrome. At every turn I hold my breath, FHA historically is known for being a pain. Seriously? All they are looking for is that your home isnt full of crummy junky fixes, basic needs. Peeling paint is a bit over the top, but it isnt as well...
If a seller agrees to do FHA, He just has to buck up and follow the program, simple as that. Im no real estate expert and do not want to be. The frill and thrill of going through an escrow in as much as it stressful for the buyer and seller leaves us without any condideration for the amount of stress and gymnastics the agent must gop through behind the scenes... My hat is off to y'all (as they say)
GRACE>>>> Good grief 25% over the asking price, cash offers?
If this is the case, Im begging you Grace please tell us your kidding... I thought dinner for two, cash offer and some other fireworks would be sufficient. Maybe I will offer up my only Son in the deal...
0 votes Thank Flag Link Fri Jun 28, 2013
Sorry Patrick, but the going rate for homes in some of the more desirable areas is between 25-30 percent over asking. It is insame, which is why so many of my buyers have decided to just sit it out. Personally, I think the pricing is unlikely to come down, but none of them wants to believe me right now. They will reenter the market at much higher costs. It coud stay this way for at least the next year.
Flag Sun Jun 30, 2013
Exactly. I say this with all do respect, it sounds like you're insinuating that an FHA buyer is less likely to have the additional funds to make up for whatever didn't come in appraised value over a low down payment conventional buyer. That's simply not true. In your response you said that in FHA "comps had to be there to support offer price" but this just as true for conventional loans. The general association with a weak buyer to an FHA buyer is just a horrible assumption.
0 votes Thank Flag Link Wed Jun 26, 2013
Javier, right now, ALL buyers are having a very difficult time competing to purchase a home. If a home doesn't appraise--and frequently they don't because our housing prices are escalating at such an ridiculously fast rate, the seller doesn't have to reduce the price..the buyer just makes up the difference or loses the home to one of the other 20 or so buyers who want the same property and will gladly plunk down the money for the home. Because FHA buyers often don't have the means to make such quick financial investments whilst others CAN, it makes it harder for sellers to rationalize selling the home to a substantially less cash rich buyer. So it is a problem for FHA buyers and those on a budget with conventional loans. Until the market eases here in Cali, only the very very fortunate few with cash and lots more money than the listing price will ever get the home.
Flag Wed Jun 26, 2013
Fact, comps ALWAYS have to support sales price. Fact, if a house doesn't appraise for the sales price, the SAME EXACT THINGS happen with a conventional loan as it does with an FHA loan. This is exactly what I mean!
0 votes Thank Flag Link Wed Jun 26, 2013
With FHA buyers appraisal values and financing timeframes are always a concern. In a hot market sellers want the offer that is going to close with no issues. Just because you are highest offer doesn't mean you are the strongest. No listing agent wants to have a transaction fall through with their client. Another offer with conventional financing and larger downpayment has the winning hand. I have taken many FHA offers but comps had to be there to support offer price. Hang in there because higher interest rates reduce offers and price competition.
0 votes Thank Flag Link Wed Jun 26, 2013
Hi,

I would say put an offer on a property which has been in the market for long (if there is one!!).

Can you go 5% down?

Thanks
Jacob
NMLS 327086

http://www.swanloans.com/web/pgcnfID_128084/San-Jose-Mortgag…
0 votes Thank Flag Link Wed Jun 26, 2013
Unfortunately this is a common practice right now and I don't think you can do much except bide your time and wait for the market to calm down.

Something I have done for my FHA buyers this year....go door knocking in the neighborhoods they want to buy and try to find something that's not on the market - thus way less competition.

Good luck. Just know it's not only you.
0 votes Thank Flag Link Wed Jun 26, 2013
Also, huge mistake in believing that a buyer with less down payment is more difficult to close than a buyer with a larger down payment.

You can be a buyer with minimum down payment, whose debt to income ratio is low and/or within what a bank will approve and excellent credit, and yet be considered a weak buyer. Meanwhile a buyer with a large down payment, troubled credit history, and boarder line debt to income ratio, is considered a more attractive buyer? Is just another indication of how little some people know about how financing really works. Lack of knowledge!

A smarter and educated Realtor would find out more details about the buyer, regardless of it being FHA or conventional. To pass on a buyer simply because its an FHA offer is is ignorant.

If my response was helpful, consider clicking BEST ANSWER!

Javier Meneses
Senior Loan Officer
NMLS #23130
STERLING NATIONAL BANK
310 Crossways Park Drive
Woodbury, NY 11797
jmeneses@snb.com
(516) 606-9648 Cell
(631) 659-2011 Office
(516) 918-5383 Fax
0 votes Thank Flag Link Wed Jun 26, 2013
I happen to have a problem whenever I hear this. I believe it's ignorance (not in an insultin way) in behalf of the Real Estate professionals working with the seller. It's been a long time now that FHA appraisal requirements practically mirror conventional appraisal requirements. For a Realtor to not educate their seller on the fact that a 3.5% down payment FHA borrower is not necessarily a weaker buyer than a 5% down payment conventional buyer, is just pathetic and unfortunate. Not only can it lead to eliminating a home buyer from the freedom of picking the loan program they want, but it also causes the seller to pass on a qualified buyer.

If you continuously encounter this problem, you may want to consider doing a conventional loan as oppose to a FHA. This means you will have to come up with an additional 1.5% down payment and make sure you have enough reserves to meet conventional guidelines. Meet with your Loan Officer and make sure that all other aspects o your loan will work with a conventional loan.

Good luck!

If my response was helpful, consider clicking BEST ANSWER!

Javier Meneses
Senior Loan Officer
NMLS #23130
STERLING NATIONAL BANK
310 Crossways Park Drive
Woodbury, NY 11797
jmeneses@snb.com
(516) 606-9648 Cell
(631) 659-2011 Office
(516) 918-5383 Fax
0 votes Thank Flag Link Wed Jun 26, 2013
Thank you for your response. What makes this difficult to understand is I do have excellent credit and even on FHA am putting 5% down. My reserves are all in order. The reason I am not going convential is I am a Firefighter and large portion of my income is in overtime. FHA has given me credit for a small amount of OT where as on convential they won't. I agree it is ignorance on the part of the Selling Agents.
Flag Wed Jun 26, 2013
Wow! Soliciting the best answer award! How sleazy!
Flag Wed Jun 26, 2013
Other that putting down more money, there isn't really much you can do. When sellers evaluate offers they don't just look at price, they look at likelihood of closing, and generally speaking those with more skin in the game close more.
0 votes Thank Flag Link Wed Jun 26, 2013
This is an increasing issue for buyers, since there are special requirements on FHA loans such as a more intense appraisal of the property. This is in concert with a lower down payment, and usually sends sellers to the next offer.

The first option is to put more money down, which shows more commitment to the seller. 5% instead of 3.5% makes a difference in loan options.

The next option is to do non FHA financing, which also would mean an easier loan process.

It is difficult to offer over asking on an FHA loan, again due to appraisal value concerns.

I am happy to help and review if you like.

Best,

Eric O. Nelson, III
Sr. Mortgage Planner
SVC Funding
408-268-2442
NMLS # 120412
DRE # 01258488
0 votes Thank Flag Link Wed Jun 26, 2013
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