Home Selling in McLean>Question Details

Hunting4home, Home Buyer in Fairfax County, VA

Are there any risks to sellers to accept an FHA loan?

Asked by Hunting4home, Fairfax County, VA Mon Apr 26, 2010

We have been on the market for 3 days and have 1 offer from buyers using an FHA loan. Are there any risks for accepting an offer with FHA loan? I understand that I would be responsible for some taxes at closing. That's fine. I have seen some listings that say "no FHA loans." Why is that?

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That would depend on where you have your property priced. The biggest risk is that FHA appraisals tend to be very conservative. Meaning - if the home does not meet the sales value, then someone must give. You may need to reduce price, or they may need to come up with more money somehow. That can be sticky, since FHA loans are usually picked when a buyer has little or no down-payment.
Some sellers just do not want all the hassle of that process, and wait for a conventional loan buyer or cash buyer.

The bottom line is that loan terms are part of the offer. A better loan, is a better offer, since if all the other contingencies are equal, a better loan has the best chance of closing. That is the name of the game - closing.
Web Reference: http://TalleyHurstHomes.com
0 votes Thank Flag Link Mon Apr 26, 2010
FHA appraisers tend to be a little fusier. I have personally never seen "no FHA loans", but I have seen brokers put "will not qualify for FHA". Perhaps that is what they are referring to? If a home is in a state of disrepair and needs alot of work, it may not pass the appraisal.

By the way, they have been easing up a bit from where they used to be - just an FYI.

I had a client who sold in February. There was some peeling paint around the trim of the garage door. They insisted that we paint it even after I explained that it was 10 degrees out and that if my seller paints it now, the buyers will have a worse mess in the spring. Latex paint does not dry in 10% and it becomes like rubber.

Well........ a few months later I got the call. The paint is not only peeling but they can't sand it down because it turned into a rubbery-like substance. Go figure.

But, not to scare you because I have had many FHA closings in the past couple of months and they really have become more lenient.

Hope that helps.
Linda
Web Reference: http://www.lindacefalu.com
1 vote Thank Flag Link Mon Apr 26, 2010
Just dealt with this issue and couldn't find out information from a seller's perspective. FHA appraisals stay with the property for 120 days. Lenders call appraisers and can gently explain that they are "really" concerned about the buyers qualifications and the deal. Which lets the appraiser (who sees the sales contract) understand that the lender is not enthusiastic about the appraisal coming in within reach of the current buyer. Appraisals have all sorts of room to move depending on the appraiser. It is a person's perspective based on the data they present to defend the decision. It has to be reasonable and within guidelines but it can and does vary considerably amongst appraisers. That is the reason that FHA wants the appraisal to stay with the property for 120 days so that there is not shopping for appraisals. Needless to say the appraiser collects their payment from the Lender.
As a seller once the appraisal has been done I can challenge the appraisal (ha good luck with that it is a subjective argument) or I can reduce my price to the number I know is not accurate and below market value or I can sell only to conventional or cash buyers. But as a seller you know you have lost a big chunk of the buyer market (FHA buyers) You can also wait 4 months for the appraisal to expire. Great if you have the time. You can hope that an FHA buyer can go cash over the appraised amount. Hey you never know. But in reality it puts the seller in a serious negotiation problem and it is likely that you are going to have to reduce your price.
Some things you might not know. FHA rules are guidelines not law. In other words if a lender or appraiser doesn't follow the rules it appears nothing happens. Case in point the appraisal on my property was low and it was not entered into the system. I nor my real estate agent were made aware of this detail. The Lender has access to the FHA system. They are aware. Good idea #1 have your realtor find a lender and have them look it up in the FHA system to see if the appraisal was even entered. Good idea #2 Have your realtor write in the contract that if the appraisal does not meet contract price that you do not want it entered into the FHA data bank if the loan is not going to be approved.
Another little know fact. A lender can look at the appraisal and decide that it is not reasonable and can simply request another appraisal and go ahead with the new appraisal if it is higher. Now they have to have reason to believe it is low but they are allowed to over rule it so to speak. All they have to do is get another appraisal and keep the other one on file. Good idea #3 just ignore the poor appraisal continue to accept FHA offers. If the buyer is a good bet for the lender it is my belief that they will find away around it.
Being reasonable now I am talking about a property at legitimate market value based on current comps. If you are over inflated in your price forget it. I am also talking about good buyers who have the 3.5% down and closing costs and good enough credit scores to acquire the loan. Good idea #4 don't accept FHA offers contingent on the seller assisting the buyer with closing costs unless you are dropping the price below appraised value. This method only inflates the property value over the legitimate appraised value and you know darned well you are not going to close a sale. Your realtor should advise you of that! Remember FHA does not concern themselves with the seller's issues they just say "hey don't sell".
0 votes Thank Flag Link Thu Feb 4, 2016
"No FHA loans" applies primarily to two factors: property condition (no working kitchen, for example), and also type of property.

February 28th FHA ceased allowing "spot approvals" for condos and townhomes. That means that if a building is not approved, the ONLY way one can buy a unit is with conventional financing. To obtain an approval for an entire building will cost around $5000- $8000 in our area, so many smaller buildings HOAs are not going to approve an expenditure of that amount just so one owner can sell.

There is a sentiment by some that unless the buyer has 20% down, they are not "real buyers". The truth is that once you have approval from a lender (and I would ask your listing agent to call the buyer's lender and actually TALK with them about their qualifications), the amount being financed is not as important as the motivation and qualifications of the buyer.
0 votes Thank Flag Link Tue Apr 27, 2010
Keith Sorem, Real Estate Pro in Glendale, CA
MVP'08
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My colleagues below have answered your question well! Only one thing was left out. If you have an FHA appraisal on your property...and it comes in low...and you (purchaser and seller) can not agree on a modified price or terms..and the contract fails..then the appraisal sticks with the home for 6 months. So then..you will he limited to an alternately financed loan for the next purchaser.

Other than that..some agents seem to think you need 14 or more days to get an FHA appraisal however, that definitely is lender specific. Personally I do not like to tie up my sellers for that long.

Anyway, your agent should be able to handle that and make sure the financing contingency is not that long. Best of luck to you!

Kind Regards,

Erik J. Weisskopf, ABR,CDPE,CRS,GRI
Erik@AskMeAboutHomes.com
0 votes Thank Flag Link Tue Apr 27, 2010
Hunting4home,

In December 2009, FHA issued new guidelines for condo buyers.

As of December 2009, a condo buyers can receive FHA mortgage as long as the condos they plan to purchase is in a condo development where at least 30% of the units are already sold AND no more than 50% of units are financed with FHA loan.

[Prior to that 50% of units had to be sold and only up to 30% of condo owners could have FHA financing ]

As for FHA appraisal, FHA requires that home is in moving-in condition and there are no major problems with the house: mold, cracked foundation, roof damage, working appliances, etc. If your house is in good condition, you have nothing to worry about.
0 votes Thank Flag Link Tue Apr 27, 2010
Yes, there are some risks: appraisal, condition of property, fees. Since your agent knows your property and how the contract is written, may I suggest that you discuss this with him or her to get guidance on how to assess these risks?
0 votes Thank Flag Link Tue Apr 27, 2010
In some cases a home cannot be purchased by an FHA buyer due to it's condition. If the home is a condo it must be FHA approved or they cannot use an FHA loan to purchase. If your home is in good condition, been owned by you for more than 90 days and is not a condo, then you probably do not need to be concerned about accepting a buyer with an FHA loan. I hope your transaction closes without a hitch!
0 votes Thank Flag Link Mon Apr 26, 2010
I agree about the "fussier" part. They can be picky about repair items, but sometimes they are not. When they say "no FHA loans", sometimes that is because it is a flip. If the home was purchased less than 3 months before, and they are re-selling it, purchasers of that home couldn't go FHA. But I think that rule was recently changed to allow it now.
0 votes Thank Flag Link Mon Apr 26, 2010
Hi there,

What I've found recently is that often you see no FHA loans for condos, that are not FHA approved. I had 3 contracts that close in May on 3 separate condos, and they are all FHA loans. I've not yet experienced any difficulty in losing FHA loans, but I understand the challenges presented with an FHA loan on a property that is in need of major repairs (e.g., mold, flooding, missing appliances, etc.) I hope this is helpful.

warm regards,

joan
0 votes Thank Flag Link Mon Apr 26, 2010
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