The seller may be misinformed. There are only a couple of reasons a home in Frisco, TX would not be eligible for FHA and may still go Conventional.
1. Price - the FHA loan amount cap is $271,050 for Collin and Denton Counties
2. Type - FHA has a CONDO approval process (search here - https://entp.hud.gov/idapp/html/condlook.cfm)
3. Condition - differed maintenance is and issue when using the FHA if the condition of the property poses a safety hazard or if the estimated cost of the maintenance is over $5,000 - most buyers using the FHA would not have the experience or the ability to do that kind of rehab.
4. Owner/Price â€“ This is the anti-flipping rule. The current owner must have been on title for greater than 90 days unless the seller can prove how much they paid for the home, how much they spent for rehab/renovation and the new sales price is not more than a 30% increase.
I hear a lot of sellers ask why FHA these days. There are stereotypes and misconceptions surrounding the FHA, some with cause and some without. The length of time needed to close should not be one of them when you are working with a professional. The property condition requirements should be easy to decipher â€“ an experienced agent, should be able to give you a recommendation.
We all have to remember, FHA has one goal in mind â€œto make homeownership available to those who wouldnâ€™t otherwise be eligibleâ€ â€“ the rules in place are there to protect the FHA buyer and the FHA insurance fund from undo risk.
I hope this helps and I really mean it â€“ take the time to seek out a PROFESSIONAL, it will be worth it.
ROB SPRING, MBA
Why would FHA financing affect the sellerâ€™s opinion of the offer?
One reason could be the FHAâ€™s Anti-Flipping Rule that did not allow investors who may have purchased a foreclosure, then fixed it up to sell, to sell the home with FHA financing for 91 days after purchase. Beginning February 1, 2010 the rule was modified but there are still special rules that apply. You can read more about the Anti-Flipping Rule here: http://www.fhainfo.com/fha-anti-flipping.htm
Itâ€™s the lenders underwriting department that determines whether or not you get the loan.
The underwriter is the person within the lending institute that reviews ALL the documents you provide to them to determine whether you meet the lending criteria that the bank has set. Every time you submit something different or change a dollar amount on any of your financial records between the time you submit the offer and close on the property the information is submitted to underwriting and must be reviewed by the underwriter to determine if you are a good risk for the lending institute.
One more thing... Iâ€™ve sold several homes to clients who have used FHA financing and none of them have had an FHA inspection. As of January 2010 inspections are not required for FHA mortgages. So the idea that the seller does not want to do the repairs required by an FHA inspection is a misinformed seller. However, every buyer should pay for an option period to allow the time to have the home inspected by a licensed home inspector. An inspection can cost anywhere from $300 to $500 depending on the size of the home but is well worth it to the buyer to know the full condition of the home.
Hope this helps!
Real Estate Consultant
You have already received a ton of solid answers to your question. At the risk of being redundant I will add mine ... essentially a summary of the others:
A. It rarely should matter to the seller.
B. If it does, it is probably for one of the following reasons:
1. FHA inspections can be a little stringent., but this protects you as the buyer.
2. Certain properties (some condos, for example) do not qualify for FHA.
3. There may be concerns about the appraisal value.
4. If it is being purchased as an investment, FHA has anti-flipping rules to be considered.
5. The seller may "feel" that the buyer with 20% down is more solid. This is more emotional than substantive if you are both pre-approved for your respective financings, but feelings do matter.
All my best,
The FHA inspection, although it's a concern for some investors (especially cheap ones who aren't willing to pay the right pros to do the work correctly), it's not a major concern for most of us (because we hire contractors who are FHA certified to do the work). Jan is correct: the anti-flipping rule IS our primary concern. (One may confirm this by checking out any local REI clubs.) Although the FHA temporarily suspended that rule, some banks continue to enforce their own variants of it.
Although some investors (myself included) know of several alternatives to work around those anti-flipping policies, others simply opt to reject offers from buyers with FHA financing while hoping to close with buyers who have conventional loans or cash.
Yes lender is the person who approves you for the loan.
Many professional have drama off minor details vs. the larger picture of getting a home sold
But, not all sellers operate this way. FHA loans just require a few more "hoops" to be jumped through in comparison to a CONV loan. The government does a little more "homework" on their potential loan investment - which is not a bad thing in the whole scheme of things. I'm not sure what your situation is - but, for instance, an FHA loan would potentially be more problematic for an older, unmaintained "repairs-needed" house; or if trying to purchase a condo (lots of restrictions/guidelines regarding % of owner occupants, type of HOA, insurance details, etc.). PLEASE NOTE: This doesn't mean that an FHA loan can't be used for either one of these examples (the seller can agree to make needed repairs for the sale of the home and/or the condo could pass all of the guidelines and be FHA-approved). It just would take a little more effort by almost everyone involved. An unmotivated seller combined with a lazy seller's agent or buyer's agent with an FHA loan on the table could easily prove disaster.
However, if the seller's agent has educated the seller as to what the FHA loan will require of them (proper home condition/repairs/maintenance in order to pass the FHA appraisal/inspection; seller to pay a portion of the buyer's closing costs) then the seller shouldn't have a changed opinion on the offer due to the type of loan. Hope this helps.
Also if there are appraisal issues the FHA appraisal stays with the house for six months and could prevent a future FHA buyer at a higher price to purchase the house. Lots of things change in six months. So I have seen this be a negative for sellers this year.
All in all many sellers would prefer to see conventional, but depending on the price range it will be common for 90% of buyers to be using FHA loans, also depending on the location.