Typically FHA buyers are stuck with a strict set of parameters and price points. They can be tight on debt to income ratios and not flexible in moving up in price if necessary. The sellers lender often times will counter the originally agreed upon offer, and then what? If you cannot move on price, then time has been wasted by all and the seller could end up in foreclosure if there is a sale date looming.
I just had an offer on one of my short sale listings. It was a condo in Lynnwood. The offer was within a few percent of asking price and only on the market a few days. The buyer was FHA and they wanted more in closing costs than their down payment. The agent for the buyer mentioned that they NEEDED this closing cost money to do the deal and hoped the bank would make it work for them.
I did my best to explain that the bank can and will counteroffer the deal and that it is my job to justify the price and offer with my own BPO and appraisal that is submitted to the lender and actually negotiate rather than just sit back and take what the bank throws at me. They backed out of the deal within 6 hours of sending over the offer.
So, in my humble opinion, most of the time, it is not a good fit. Can it work, yes! Absolutely. Will I work with someone who is an FHA buyer and they really love the house and want it? Yes, I am right now and we are awaiting the banks response. However, I make sure the buyer knows the pitfalls that can take place and assure them that I will do my best for them, but try to manage expectations in such a way that they are not devistated if the deal falls through.
It is unfortunate that the people willing to actually pay market value for some of these short sales are the very people who may not be the best candidate for the deal to go through.
Tell her your situations Here: http://fhamortgageinfo.com/
How competative is your market. Will your FHA buyer be competing with other buyers?
If your area is competative and there are other offers being submitted on properties then you may want to have your buyer submit a higher Earnest Money Deposit than the typical 1% to make their offer more competative.
The biggest problem with short sales is getting the buyer to stick around. So convience the listing agent that if they accept your offer, your buyer will stick around and you up your odds of getting in first position. In addition, on short sales... I almost always ask for sellers concessions on short sales where not as easy to do on bank owned.
For these reasons.... I say, a strong Yes. And banks usually do not care on a short sale how you are financing where in general... the picking order for a bank owned is Cash, Conventional, FHA, VA.
the bank will definitely not concede closing costs because that simply means more money out of pocket
also FHA appraisals are stricter - any structural issues will throw it out of contention to close... and if the seller is in short sale, how will they come up with money to fix an issue?
There are great deals out there and right now since you can't get a mortgage for more than a borrower can afford, people are chasing short sales because they think they can buy more house that way. If you're looking for a value property - at any price range - just look at a cluster of short sales and find a seller-controlled listing in that community. You may not have the lowEST list price but based on the timing, the ability to negotiate, the ability to have the seller bring the property up, the surity that someone has been paying the electric bill and maintaining the property - these are all reasons why you should reconsider taking an FHA approved buyer to a short sale
until this mess is sorted out, I consider short sales (in my market) to be properties that just won't sell
Take the full market value at current prices. Deduct your cost of inspections, and cost of any bids and repairs, then deduct the amount of the bids themselves. Be sure and include everything from carpet to paint...if it is in bad shape and does not meet standards for Section 8 housing ..the bank can not argue, it must be repaired! The roof included! Deduct an additional 25%-50% of the bids for repairs (depending on how much work is needed, the more work needed the higher the contingency). Remember to deduct any interest, taxes and insurance for the time the property is in rehab. If contractors tell you it will take 8 weeks, allow 12 weeks. At the end of this process you should actually have CREATED EQUITY, not just made a market purchase. You should have value for your work..and time. Make sure to include a fair value for that in the additional 25-50% I mentioned. You will be spending time, believe me! Your time as project manager should be at least 25 per hour...if you are a professional at it then more like 60-90 per hour! You have the right to include your expected equity when through with rehab.
You can get three bids for each trade and average them, if you can't get three bids then instead VERIFY the contractor by his reputation and include the information that his background and ability proves him to be the best choice. If you have more than one bid, and a lower bid is too low or missing something throw it out. There is no such thing as a deal that looks too good to be true. It usually is just that.
All of this means that you should be talking to contractors and becoming familiar with them. Let them know that you are looking at purchasing SS rehab and will be wanting to use them (whether you plan to do the work yourself or not doesn't matter, however if you are getting a construction/purchase loan a contractor will be required!)
In the contract for purchase include addenda with all this information, the costs of rehab and contingencies etc. Include your expected equity for performing the rehab. Let the bank see it all. Be sure and provide a copy of the inspection reports and contractors reports to the seller and the bank. This is FULL disclosure to them. You can even notify them (most states require disclosure of KNOWN deficiencies) that they have now been informed of deficiencies and must disclose them to any future purchaser. This limits the value of the property to any purchaser in the future and all make the seller and the bank want to dispose of the property even faster! Remember these documents are professional inspections and reports...and prove the deficiencies..they must be disclosed to any seller once known. Make sure you include the current owner's name as well as your name on all reports and documents!
If the bank does not want to allow you to gain equity for your work, then you can just tell the bank that you will not work for free to resolve the bank's upside down mortgage. Tell them you expect to be recompensed for the RISK and TIME that you are taking. Very simple. There are websites that can explain how to value the risk..you can use their information as well.
Keep RECORDS of all contact, phone calls etc. Make sure your RE agent does the same. EVERYTHING said by the bank and seller, contractor, your agent, the seller agent. every detail! Make sure you have a paper trail to every detail and are copied with every detail from every player...in your email if possible. I have forced a sale by a bank before because they made statements that were properly noted in a timely fashion in a log book. Also, it can be helpful to know the STATE laws regarding banks owning properties. Some states do not allow banks to retain property at all, they must instead dispose of it forthwith. This gives you advantage to begin with. If they foreclose they have to dispose as instantly as possible. I believe TX is one of them.
Yes you can purchase a short sale with an FHA mortgage but there are some considerations when doing so:
1. Short sales tend to take a touch longer than traditional sales and they create timing issues.
A. Credit reports, income documents, asset documents and other documents need to be constantly updated and can become outdated which means your pre-approval may no longer be valid due to changes in your situation.
B. Your interest rate is typically locked based on a certain time frame for closing. If the short sale takes longer to close than originally believed you could end up with a higher interest rate and/or monthly payments.
Theses are only a couple of concerns and not intended to be all encompassing. Most of these circumstances can be dealt with prior to moving forward with your financing but not always. I have closed many mortgage loans with FHA loans on short sales but they do require patience and significant lender experience.
I hope this helps.