Would I be at a disadvantage trying to purchase a home with a FHA loan?

Asked by Nick, Mount Washington, Los Angeles, CA Mon Mar 26, 2012

I live in Los Angeles, CA and would like to purchase my first home but I don't have the 20% down payment, I've learned that FHA loans typically require something like 3% down. We have excellent credit, but would have problems finding homes to accept our bids with an FHA back loan and 3% down. What about short sales or forclosures, are these options for FHA loans?

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Rene' De Blanco, MBA’s answer
Rene' De Bla…, , San Diego, CA
Tue Mar 27, 2012
Nick,

Have you considered a HOMEPATH property? http://www.homepath.com The best part of a HOMEPATH home is you can put as little as 3% down, AND there is NO mortgage insurance.

Kinecta Federal Credit Union (a not-for-profit direct lender) is one of few HOMEPATH lenders in the country, with a presence in Los Angeles County.

I would suggest a property near a Metrolink station. I've lived in LA for 23 years, and I am confident homes near the subways are going to increase substantially (especially once the new stadium goes up). Hope this helps!


Rene Joseph De Blanco
http://www.kinecta.org/jdeblanco
jdeblanco@kinecta.org
310-6432495
1 vote
Jessica Bate…, Agent, Beverly Hills, CA
Fri Oct 4, 2013
You can get an FHA loan with 3.5% down, credit is not an issue usually with FHA. If you have a credit score of at least 620 score you would qualify for a Conventional Loan with just 3% down. I would suggest you check out The Lenders Network they have access to several Lenders that can help you get the right type of loan you need.
4 votes
Meredith McK…, Agent, Pasadena, CA
Mon Mar 26, 2012
Dear Nick:

Your greatest challenge as an FHA buyer is competitiveness in a multiple offer situation. I have closed three buyer FHA transactions in the past couple months and agree with what others have stated that as long as the property is in good condition and will pass an FHA appraisal, the seller will generally not care whether your loan is FHA or conventional.

As an agent who regularly works NELA with recent closed buyer sales in Montecito Heights and Cypress Park, I can confirm that homes listed under $450,000, including short sales and foreclosures, are regularly generating multiple offers, including all cash offers, which puts you at a disadvantage as an FHA buyer if your buying power is in that price range. Why? Because in a competitive bidding process, the seller will prefer an all cash buyer or a large downpayment buyer because there is usually less chance that the transaction will cancel because the property failed to appraise to contract value. By making only a 3.5% downpayment as an FHA buyer, your lender will be taking more risk than a 20% down[ayment buyer, so appraisal valuation could be an issue.

But don't lose heart! You can find your dream home as an FHA buyer. The two key factors that will help you are: 1) working with an experienced FHA lender who knows how to advise you and package your loan properly and 2) working with a strong buyer's agent who knows the communities in which you want to buy and has advanced negotiation skills to position your offer for acceptance.

Good luck in your home search, and feel free to contact me if I can be of further assistance.

Best,

Meredith McKenzie
California DRE #01142186
Keller Williams Realty
1660 Hillhurst Avenue
Los Angeles, CA 90027

323-230-9749 - Cell
323-300-1110 - Office
323-300-1001 - Fax

http://www.arroyosecorealestate.com
1 vote
Dorene Slavi…, Agent, Torrance, CA
Sun Nov 16, 2014
Some sellers don't like them. FHA requires certain repairs to be made at the expense of the owner. Some property will not be able to be funded by FHA, particularly condo's. I think you will be very hard pressed to find a foreclosure property willing to work with an FHA borrower,
0 votes
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0 votes
Jeanne Feeni…, Agent, Basking Ridge, NJ
Sun Oct 6, 2013
FHA allows lower down payments along with more forgiving credit requirements. If your offer does not have competing non-FHA offers, then you should be fine. If you are competing with conventional deals, you may well be at a disadvantage. The amount of cash in the deal is one terms that a seller will evaluate. The less cash in the deal the greater pressure there is on the appraisal. And in an appreciating market, this is a very real concern.

Good luck to you!
Best.
Jeanne Feenick
Unwavering Commitment to Service, Unsurpassed Results
0 votes
Dana Lindberg, Both Buyer And Seller, Phoenix, AZ
Sun Oct 6, 2013
You can buy a foreclosure or a fixer-upper home with FHA 203k loan. The cost for repairs will be rolled into your mortgage.

For more details about 203k loan, visit http://www.cfs203k.com. CFS Mortgage and RenovationReady brings together more than 50 years of traditional and renovation lending know-how.



-----
Dana Lindberg
CFS Mortgage - http://www.cfs203k.com
0 votes
Lance King, Agent, San Francisco, CA
Sun Oct 6, 2013
There are two challenges for you:

1. Finding FHA approved properties - they used to be able to do "spot approvals" which didn't take long. Now if they aren't approved it takes a very long time.

2. Competing against other buyers who have a lot more down payment.

If you were selling your house and you had two identical offers but one had a much larger down payment, which would you pick?

What you might do is look for properties that have been on the market for a little while as they will be more open to this.

Good luck.
0 votes
Douglas Perez…, Home Buyer, Los Angeles, CA
Sat Oct 5, 2013
Property must meet FHA guidelines to be accepyable for the lender. This also includes property physical conditions and purchase price. Your agent should search for listings with this criteria. Moreover, you should also consider an FHA 203k financing; this one includes rehab amount money factored in in one loan and still putting 3.5% down payment.
Good luck!
http://douglasperez.pw
0 votes
Dorene Slavi…, Agent, Torrance, CA
Sat Oct 5, 2013
Dear Nick,
It depends on the property in particular. Some sellers are fine with FHA others cannot meet the strict lending requirements, or have other buyers who have more of a down payment. A larger down shows more financial stability to the sellers.
You won't get far with FHA on a short-sale or REO, which are often not in good condition and will not qualify. Your best bet is to contact a really good local Realtor who can guide you and outline your choices.
0 votes
Agnes Rosiak, Agent, Marina del Rey, CA
Tue Mar 27, 2012
Nick,

There are many options offered by Banks this days. You can get pre-approved for as low as 5% conventional loan. Also there is a great program for professionals.YOu should always start with a great lender who will guide you through the process. If you are interested I am more than happy to forward information to you.

Agnes.

http://www.westsideresidency.com
0 votes
Shel-lee Dav…, Agent, Rolling Hills Estates, CA
Tue Mar 27, 2012
With patience and the right seller, short sales are probably your best bet. Short sale lenders will often agree to help FHA buyers with closing costs (but will not do so for the standard 20% down buyer).

Make sure you work with a Buyer's Agent who knows FHA financing requirements, because as others have mentioned, the house has to meet certain minimum standards to be financeable by FHA. Also, a Buyer's Agent who knows short sales is a plus. They will be able to determine if the listing agent knows what they are doing. The listing agent controls the short sale negotiations and because you will be tied up in the transaction for longer than a standard sale, you want to feel confident that the short sale lender will approve the sale.

If you have any specific questons, please feel free to contact me Good luck in your quest to become a 1st Time Homebuyer and Dare to Dream.

Shel-lee Davis, QSC®
Certified Distressed Property Expert – CDPE®
Short Sale & Foreclosure Resource – SFR®
Certified HAFA Specialist – CHS®
SSG Pro®
Your Real Estate Consultant for Life
RE/MAX Palos Verdes Realty
424-2HELP12 (424-243-5712)
myrealestateanswers@gmail.com
http://shel-lee.listingbook.com
0 votes
Juan Longfel…, Agent, Los Angeles, CA
Tue Mar 27, 2012
Non Candy coated answer:
Short sale and REO agents always have them represent you.
The reason behind this is simple greed, most agents (not all) will want to double end the deal because they make the entire 5% of the sales price.
0 votes
Daniel Rivera, Agent, Daly City, CA
Tue Mar 27, 2012
20% percent is always ideal if you have the money. However, FHA is a great method to leverage your money and get into a house. I recommend FHA as a great alternative. Eventually the home will build equity and you can upgrade in the future.
0 votes
Michelle Men…, Agent, Los Angeles, CA
Mon Mar 26, 2012
Yes, you would be at a disadvantage if there are other offers on the table for the same property, especially if those include cash offers. Listing agents will automatically recommend offers with higher down payments. There are also many homes that cannot be bought using FHA funds. FHA must approve the property - often a problem for a fixer-upper.

Regards,
Michelle Menna
Realtor
DRE #01705488
Keller Williams Realty Westside
10880 WIlshire Bvld., Suite 122
(323) 272-6657
(323) 559-4422
0 votes
Robert Chome…, , San Diego, CA
Mon Mar 26, 2012
It depends what type of home you are going after. If you are going after retail priced houses in good shape, you should be competitive with a FHA loan. But if you are going after bargain priced fixer REO houses, you will be at a big disadvantage. Those sellers are many times looking for cash offers because of the condition of the property.
0 votes
Douglas Perez…, Home Buyer, Los Angeles, CA
Mon Mar 26, 2012
Hey Nick,
You shouldn't be at a disadvantage, BUT there are some areas in LA that you're competing with non FHA financed buyers offers like all cash or conventional financing even though property qualifies for FHA financing.
Standard sale, short sale, foreclosures, reo, or bank owned are candidates to buy them with FHA as long as they meet HUD guidelines.
Basically, there are two type of FHA financing, FHA 203b and FHA 203K.
1) FHA 203b is for a property that already meets HUD guidelines, and
2) FHA 203K is for a property that needs repairs to meet HUD guidelines and repair amount $ is included in the loan.

Call me, text me, or email.

Doug
(213) 375-8741
doug@cashrealty.net
0 votes
Deborah Brem…, Agent, Los Angeles, CA
Mon Mar 26, 2012
Hi Nick,
The simple answer is, "Absolutely not."
The complex answer is, in your price range, you are competing with the "fix and flip" cash investors. In this market, cash is king, and sellers, whether they are individuals, investors, or banks prefer as much down payment as possible. They want you to have as much skin in the game as possible.
You will more than likely encounter multiple offer situations, and all things being equal, the higher down payment, or more conventional loan, will usually win out.
FHA loans can be tough to close on homes that have condition problems, or on condos that are not located in FHA-approved complexes. There are workarounds for these issues, but they don't always work!
It's extremely difficult to get a mortgage lender to finance the purchase of a condo in a Home Owners' Associations (HOAs) with a high rate of unit owners being behind on their monthly dues (over 15%), or a low rate of owner-occupancy (less than 75%t). Unfortunately, when there are a number of foreclosures or short sales in a complex, both of these rates move in the wrong direction, and units become nearly impossible to buy unless you have lots of cash.
All of that being said, I have been able to find 16 properties for FHA buyers in the last 18 months. It wasn't simple, and we lost out on a few along the way, but it can be done. You need a savvy and assertive agent and a great lender on your side. Don't be discouraged!
Best,
Deborah Bremner
The Bremner Group at Coldwell Banker
REALTOR, 00588885, ABR, CDPE, eAgent, CSP, SFR, HRC, CRE
(O) 310-571-1364 DIRECT
(D) (310) 800-2954
http://www.thebremnergroup.com
Accredited Buyer Representative|Certified Distressed Property Expert |Pre-Foreclosure Specialist Certified
I want you to know that I appreciate any referrals from friends and associates who may be in the market to buy or sell real estate. You can count on me giving them the same high-quality service I provide to all of my clients.
0 votes
Janey Bishop, Agent, Calabasas, CA
Mon Mar 26, 2012
Assuming all other terms are the same your offer will not be as strong as a cash or conventional offer. FHA loans have more bureaucracy and more stringent requirements which makes them less desirable. Your realtor can help you remain competitive by making other terms stronger. Or consider one of the conventional loans with 5% down.
0 votes
DJ Bonner, Agent, Long Beach, CA
Mon Mar 26, 2012
Hi Nick,
Short sales and foreclosures are options with a FHA loan, as well as REO’s. I have a great lender with a 5% down conventional program with NO PMI. Please feel free to call or email me and I will put you in contact with him.

Regards,
DJ Bonner
Keller Williams Realty
Djbonner@kw.com
562-572-4203
0 votes
Blair Thomps…, Agent, Sherman Oaks, CA
Mon Mar 26, 2012
The FHA of today does not have the problems of the FHA loans in the past, although for some uninformed buyers there remains some stigma., but with a strong agent those problems can be overcome. Foreclosures are absolutely no problem for FHA Loans while short sales can be a little problematic if your offer is stacked up against an all cash deal. FHA does have some additional condition requirements but they are pretty easy to deal with. In some ways, FHA loans are easier to get right now than conventional especially with the lower down payment. Your job situation is important for FHA qualification so you really need to get prequalifiedby a strong lender before you actively look for a house. I know of several great FHA direct lenders I would be glad to point you to. As with any home purchase, it is imperative you have a knowledgeable agent to help you thru the maze of the process.
0 votes
Lance King, Agent, San Francisco, CA
Mon Mar 26, 2012
Nick,

How easily an offer with an FHA loan will be accepted depends on market conditions, but know that all else being equal in a competitive offer situation you will lose to someone putting down more money.

Talk with a local agent/broker and they can help give some more substantive local insights.

Best Regards,

Lance King/Owner-Managing Broker
lance@fixedrateproperties.com
415.722.5549
DRE# 01384425
0 votes
Pat Rollie, Agent, Glendale, CA
Mon Mar 26, 2012
Nick, Depending upon your price range, the strength of your offer in its entirety and of course the strength and skills of the agent representing you, you should be able to get your offer accepted. Plenty of deals get accepted with FHA financing. The key will be with your agent and the lender who has pre-approved your loan.
0 votes
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