Why would a seller refuse an FHA?

Asked by Nyarch, 11946 Sat Feb 13, 2010

I am interested in purchasing a (recently built-condition *new) home in NY with an FHA (3.5% down). I have been approved and have no problem comingup with the finances. The realtor for the house I'm interested in purchasing is telling me that "standard" is 10% down on signing and this is the only option they will accept even with an FHA. Is there a reason for this? Does my mortgage downpayment somehow affect the seller with unseen fees?

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Anna M Brocco’s answer
Anna M Brocco, Agent, Williston Park, NY
Sat Feb 13, 2010
As Gail and Elva, already have mentioned someone is not totally educated on FHA loans--There are no additional costs to the seller when a buyer plans on using an FHA loan--If you don't have an agent and this is the property for you--consider the services, you'll save yourself a lot of time and aggrevation--10% down is the standard on a regular loan but not in your case--Do keep in mind the agent should be presenting your offer to the seller regardless and give the seller the opportunity to decide either way-- and I wonder if it was done. Again, if this is the house for you--get an agent to negotiate on your behalf or move on--it doesn't sound like you will be getting anywhere fast.
0 votes
Darryl Shurg…, Agent, Ronkonkoma, NY
Mon Aug 26, 2013
Since the post is old, but the question comes up often,

Sounds like ignorance. there is no "standard". Whatever lending programs allow. FHA 3.5% down, Fannie and Freddie have similar programs for 5% or less down payment. If the buyer qualifies, they qualify.

For that agent to say such a thing is ignorant, and needs to attend some educational luncheons that many lenders sponsor to dispel such silly business limiting attitudes, or talk with more successful agents. At the very least spend some time on HUD.gov website and read up on the FHA program, also Fanniemae.com for some self education on how conventional loans work.

If the seller had competing offers to consider at the same time, one with 3.5% down and one with 10% down, the seller might think that the 10% down offer as being stronger, however that doesn't mean it is true.

Especially these days where a lender won't even give a pre-approval unless they see income documents, asset documents, run credit and run through an automated underwriting system for approval.
1 vote
Melissa Goss, , Center Moriches, NY
Tue Jul 23, 2013
They likely already know that the home will not pass an FHA inspection
1 vote
Darryl Shurg…, Agent, Ronkonkoma, NY
Tue Sep 3, 2013
hmm. I hear ya Melissa. But the items on an FHA appraiser's punchlist vs. a conventional appraiser's punchlist aren't so great a barrier to justify limiting one's potential buying pool to only conventional loan buyers.

what could the issue be? missing handrails? conventional would probably need that. exposed walls? missing floor coverings? loose/missing gutters? the usual stuff? Seller should fix that junk anyway before they list a property. Who is coaching this seller?

It is usually nuisance stuff that FHA wants to see fixed. Sometimes other more costly nitpicky items like roof inspection, but rarely something that would be a deal killer for FHA but not conv.

I can't think of one thing that an FHA appraiser would condition for that wouldn't be a problem for either a conventional lender or the buyer themselves. In which case it is not a buyer issue at all, it is a property issue.

Which doesn't make the property 'bad' just means the transaction needs a bit more understanding.

Agents need to have a firm conversation sometimes before taking a listing. pawning off a home with issues to unsuspecting buyers does not help any real estate agent or broker to establish and maintain a good reputation.

So I'd have to ask myself....was that listing perhaps in need of some cold hard reality?
0 votes
Melissa Goss, , Center Moriches, NY
Tue Jul 23, 2013
Also the main reason could be the seller, if this is what the seller requires there is no other way around it
0 votes
Irene Shmery…, , East Quogue, NY
Fri Dec 7, 2012
new construction usually dont want FHA because of the cash upgrades that are not included with the contract of the home. Also FHA has difference appraisla requirements that a conventional does. not.
0 votes
Jerry Cibuls…, Agent, Southold, NY
Sat Feb 13, 2010
FHA mortgages were not very common in the marketplace over the past few years. There are a few different requirements for an FHA mortgage when compared to a conventional mortgage. Make sure the agent you are working with is aware of the differences when they are speaking to the homeowner. Many purchasers are using FHA mortgages now and they have recently updated the loan requirements. Review the link below regarding the FHA program.
This is a great program if you meet the requirements.
0 votes
, ,
Sat Feb 13, 2010
Hi Nyarch,

I agree with Gail. You need to find an aggressive realtor who is comfortable representing buyers who are using FHA loans to finance the purchase of their homes.
0 votes
Gail Gladsto…, Agent, 11743, NY
Sat Feb 13, 2010
I think the Realtor needs to be re-educated in current FHA loans and lose her/his prejudice.

And why is the Realtor making this decision? It is up to the seller!

Do yourself a favor and get an aggressive Realtor to represent your interests!
Web Reference:  http://GailGladstone.com
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