why would an fha affect the seller's opinion of the offer? it's the lender who will make sure I am a good candidate for the loan, right?

Asked by Scania, 75034 Sat Jun 5, 2010

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Robert Spring, Mortgage Broker Or Lender, McKinney, TX
Fri Jun 11, 2010
As a lender in Frisco, I just had to pile on here.

The seller may be misinformed. There are only a couple of reasons a home in Frisco, TX would not be eligible for FHA and may still go Conventional.

1. Price - the FHA loan amount cap is $271,050 for Collin and Denton Counties
2. Type - FHA has a CONDO approval process (search here - https://entp.hud.gov/idapp/html/condlook.cfm)
3. Condition - differed maintenance is and issue when using the FHA if the condition of the property poses a safety hazard or if the estimated cost of the maintenance is over $5,000 - most buyers using the FHA would not have the experience or the ability to do that kind of rehab.
4. Owner/Price – This is the anti-flipping rule. The current owner must have been on title for greater than 90 days unless the seller can prove how much they paid for the home, how much they spent for rehab/renovation and the new sales price is not more than a 30% increase.

I hear a lot of sellers ask why FHA these days. There are stereotypes and misconceptions surrounding the FHA, some with cause and some without. The length of time needed to close should not be one of them when you are working with a professional. The property condition requirements should be easy to decipher – an experienced agent, should be able to give you a recommendation.
We all have to remember, FHA has one goal in mind “to make homeownership available to those who wouldn’t otherwise be eligible” – the rules in place are there to protect the FHA buyer and the FHA insurance fund from undo risk.

I hope this helps and I really mean it – take the time to seek out a PROFESSIONAL, it will be worth it.

1 vote
Jan Atkinson, Agent, Frisco, TX
Sat Jun 5, 2010
Hi Scania,

Why would FHA financing affect the seller’s opinion of the offer?

One reason could be the FHA’s Anti-Flipping Rule that did not allow investors who may have purchased a foreclosure, then fixed it up to sell, to sell the home with FHA financing for 91 days after purchase. Beginning February 1, 2010 the rule was modified but there are still special rules that apply. You can read more about the Anti-Flipping Rule here: http://www.fhainfo.com/fha-anti-flipping.htm

It’s the lenders underwriting department that determines whether or not you get the loan.
The underwriter is the person within the lending institute that reviews ALL the documents you provide to them to determine whether you meet the lending criteria that the bank has set. Every time you submit something different or change a dollar amount on any of your financial records between the time you submit the offer and close on the property the information is submitted to underwriting and must be reviewed by the underwriter to determine if you are a good risk for the lending institute.

One more thing... I’ve sold several homes to clients who have used FHA financing and none of them have had an FHA inspection. As of January 2010 inspections are not required for FHA mortgages. So the idea that the seller does not want to do the repairs required by an FHA inspection is a misinformed seller. However, every buyer should pay for an option period to allow the time to have the home inspected by a licensed home inspector. An inspection can cost anywhere from $300 to $500 depending on the size of the home but is well worth it to the buyer to know the full condition of the home.

Hope this helps!

Jan Atkinson
Real Estate Consultant
Frisco, TX
Web Reference:  http://www.janatkinsons.com
1 vote
Rachael Hill, Agent, Frisco, TX
Thu Nov 24, 2011
I have worked with two FHA (buying) Clients last month and had no problem from the sellers and one custom builder, so hope you have the same experience as we did.
0 votes
Kupke & Tack…, , Plano, TX
Sun Jun 6, 2010

You have already received a ton of solid answers to your question. At the risk of being redundant I will add mine ... essentially a summary of the others:

A. It rarely should matter to the seller.

B. If it does, it is probably for one of the following reasons:

1. FHA inspections can be a little stringent., but this protects you as the buyer.

2. Certain properties (some condos, for example) do not qualify for FHA.

3. There may be concerns about the appraisal value.

4. If it is being purchased as an investment, FHA has anti-flipping rules to be considered.

5. The seller may "feel" that the buyer with 20% down is more solid. This is more emotional than substantive if you are both pre-approved for your respective financings, but feelings do matter.

All my best,
0 votes
Robin Silver…, Mortgage Broker Or Lender, Garden City, NY
Sun Jun 6, 2010
One of the things that makes FHA loans less desirable is the perception that FHA loans scrutinize the property so much more than conventional loans, which is much less the case now than ever. There is an amendatory clause to the contract that must be signed for FHA loans says something about the buyer being able to back out if the house doesn't appraise, however very often if the house doesn't appraise, and the seller doesn't lower their price, the buyer can't come up with the extra money needed for a conventional loan either, so to me that excuse is irrelevant. People have memories of years gone by when the dreaded handrail was asked for on an FHA appraisal, thinking that this does not happen on conventional. It can be the case on either these days, because no lender wants the liability of a staircase without a handrail, that may not be to code any more. There have been a lot of changes through the years. People got away from FHA when there were all the 80-20, 80-15-5 loans around that avoided PMI, and could also be done with little or no documentation. Those loans aren't around any more, so the only choice is often FHA. Also, on conventional loans, the rate used to be the same down to a 620 credit score. This is certainly not the case any more. Even a score of 739 these days can have a hit to pricing on a conventional loan. Seller, and ovbiously agents, based on your other question, need to be re-educated about the new world of mortgages.
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Dp2, , Virginia
Sun Jun 6, 2010
Keep in mind that repeat buyers represent roughly 40% of the market, and many of them are investors. Although the non-investor sellers probably outnumber the investor sellers, the investor sellers still represent a significant portion of the seller pool.

The FHA inspection, although it's a concern for some investors (especially cheap ones who aren't willing to pay the right pros to do the work correctly), it's not a major concern for most of us (because we hire contractors who are FHA certified to do the work). Jan is correct: the anti-flipping rule IS our primary concern. (One may confirm this by checking out any local REI clubs.) Although the FHA temporarily suspended that rule, some banks continue to enforce their own variants of it.

Although some investors (myself included) know of several alternatives to work around those anti-flipping policies, others simply opt to reject offers from buyers with FHA financing while hoping to close with buyers who have conventional loans or cash.
0 votes
T.E. & Naima…, Agent, Dallas, TX
Sun Jun 6, 2010
You have received some good answers that pretty much covered it all. The FHA appraiser will be more strict about the condition of the home. That's the bottom line and yes the anti flipping rules too but not many of those in west Frisco. It also could take up to 45 days for the loan to go through. FHA gives that long to lenders to close a loan.

Web Reference:  http://www.sumnerrealty.com
0 votes
Dallas Texas, Agent, Dallas, TN
Sat Jun 5, 2010
Most sellers don't truly care just as long as your home is sold... who cares.

Yes lender is the person who approves you for the loan.

Many professional have drama off minor details vs. the larger picture of getting a home sold

Web Reference:  http://www.lynn911.com
0 votes
Amanda Searcy, Agent, Dallas, TX
Sat Jun 5, 2010
Yionada is right - if the seller is serious about selling their home, then they won't care what kind of loan the buyer is obtaining in order to purchase it - they'll be pleased that they have a qualified buyer with an offer!

But, not all sellers operate this way. FHA loans just require a few more "hoops" to be jumped through in comparison to a CONV loan. The government does a little more "homework" on their potential loan investment - which is not a bad thing in the whole scheme of things. I'm not sure what your situation is - but, for instance, an FHA loan would potentially be more problematic for an older, unmaintained "repairs-needed" house; or if trying to purchase a condo (lots of restrictions/guidelines regarding % of owner occupants, type of HOA, insurance details, etc.). PLEASE NOTE: This doesn't mean that an FHA loan can't be used for either one of these examples (the seller can agree to make needed repairs for the sale of the home and/or the condo could pass all of the guidelines and be FHA-approved). It just would take a little more effort by almost everyone involved. An unmotivated seller combined with a lazy seller's agent or buyer's agent with an FHA loan on the table could easily prove disaster.

However, if the seller's agent has educated the seller as to what the FHA loan will require of them (proper home condition/repairs/maintenance in order to pass the FHA appraisal/inspection; seller to pay a portion of the buyer's closing costs) then the seller shouldn't have a changed opinion on the offer due to the type of loan. Hope this helps.
0 votes
Deborah Madey, Agent, Brick, NJ
Sat Jun 5, 2010
If the seller has a home with deferred maintenance, the seller may concerned that the property could fail to pass the FHA inspection. All FHA loans must pass an FHA inspection.
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Bruce Lynn, Agent, Coppell, TX
Sat Jun 5, 2010
In most cases it won't. All said and done if they really knew the difference most sellers would prefer conventional. Normally this is a stronger contract, more down payment, perhaps stronger buyer, perhaps more experienced or stable buyer.
Also if there are appraisal issues the FHA appraisal stays with the house for six months and could prevent a future FHA buyer at a higher price to purchase the house. Lots of things change in six months. So I have seen this be a negative for sellers this year.
All in all many sellers would prefer to see conventional, but depending on the price range it will be common for 90% of buyers to be using FHA loans, also depending on the location.
Web Reference:  http://www.teamlynn.com
0 votes
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