It does look like this buyer is using down payment assistance (thus $1,000 down), and using a 203k loan. I will agree with Cameron in the sense there are A LOT of ways this deal could fall apart. I would demand a conditional approval instead of the desktop UW, and also counter the buyer puts up their earnest money if the deal does not close. At least ask for a written statement.
Bottom line how good is the deal? Heck if you are going by the appraisal 6 months back this looks to be full price. How have showings gone? I am not going to say what Cameron did that you should stop the deal only to enlist an agent. Now you have to get an offer OVER 170k just to make the same net! I prefer to practice common sense than beg you to hire me as a Realtor. If you can do this on your own go for it!
This is what you signed up for as a FSBO. The buyer's agent is not going to do the job for you. I am not going to do the job for you, and by god don't use the Trulia responses as your sole guide! You have to do all the things a listing agent normally does. Don't throw away a good deal just out of ignorance. ALL FHA buyers bring a certain level of risk.
It always comes down to the same thing: If you turn down this offer it is because you fully believe you can get a better one. The only way to determine that is to run comps and analyze the listing so far. Welcome to our world! Thousands of dollars on the line, and your actions will greatly effect your NET.
I will give you this little tid-bit. In my experience, and most realtors will tell you this, the first offer is usually the best offer. Even I forget this rule sometime. It all depends on how the listing has gone so far. You must weigh risk.
I do believe this is a special FHA loan but I can't recall which type. The realtor said a mortgage software was run and the bank said to work out we had to increase sale price and money towards closing.
Don't take the deal. The closing costs and downpayment don't match what is traditional for an FHA structured loan, something appears to be amiss here. You are also correct to assume that the appraisal would be an issue. The FHA financing addendum contains an escape clause that would require the property to appraise for full value or the buyer would not be required to or allowed to purchase the home at that price. Best to move on and enlist the help of an agent to make sure your interests are protected.
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