FHA--As a seller what should a seller be leary of regarding a buyer using FHA?

Asked by Realtynovice, Akron, OH Sun Sep 14, 2008

1. What concerns should a seller have with FHA and 2. Buyer is requesting 6% of purchase price for FHA and offer requires that any amount in excess of closing costs be used for down payment--I thought this was gone ?

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Other/Just L…, , Fleming Fitch Grant, Holly Hill, FL
Mon Sep 15, 2008

First, congratulations on your accepted offer!

You are correct to note that Ameridream will take a fee from you to provide the down payment assistance "grant"... and I agree with your assessment (as a personal opinion) that seller-funded DPAs while legal are somewhat unsavory. I have refused to write such loans in my shop as a matter of principle.

Second, just a note of caution: The Housing Recovery Act passed July 31, 2008 calls for a ban on seller-funded down payment assistance grants for FHA insured loans effective October 1, 2008. Ameridream is one of the companies that provides such "grants".

Many lenders have already ceased to accept applications using seller-funded down payment assistance grants in advance of the Octover 1 deadline. The reason is that lenders need time after closing and funding to receive the FHA insurance endorsement. There are several lenders, however, who are working applications with seller-funded down payment assistance right up to the deadline.

I suggest asking your Realtor to contact the buyer's agent to be sure that the buyer's lender is willing and able to close by September 30th to avoid an unpleasant surprise at closing.
1 vote
Other/Just L…, , Fleming Fitch Grant, Holly Hill, FL
Mon Sep 15, 2008
Lender answer:

1.) FHA insured loans do not impose any extra costs or fees on the seller. The only possible exception would be repairs needed to ensure the house meets FHA standards - Maria is correct to note that FHA is much less stringent now than in the past.

2.) The maximum amount the seller may contribute to the buyer's closing costs is 6% of the purchase price. The seller may NOT contribute to the buyer's statutory down payment of 3.00% (and you are correct to note that the seller-funded Down Payment Assistance compnies are now barred from FHA insured loans effective Oct 1, 2008).

-> If the buyer's closing costs are less than the 6% maximum, the seller retains the difference.

-> If the buyer's closing costs exceed 6% of the purchase price, the buyer must bring that amount plus the 3.00% down payment to the closing and have at least $100 in reserve after closing.

No matter what the buyer wishes to write in the contract, the underwriter at the buyer's lender will play by FHA's rules.
1 vote
Maria Morton, Agent, Kansas City, MO
Mon Sep 15, 2008
FHA loans are very commonplace these days. They are about all that's left for people with little or no downpayment. Years ago, the FHA inspection killed deals but they have very workable inspections nowadays.

It is my understanding that all downpayment assistance programs will be gone as of October 1st. Maybe you can get this deal done under the wire.

The 6% is probably 3% for downpayment and the 3% for closing costs. (Just a guess)
FHA requires 2.5%- 3% for downpayment.
Closing costs are things like: Whole House Inspection, Radon Inspection, Wood Boring Insect Inspection, Tax for 3 or 6 months held in reserve, Insurance for 3 or 6 or 12 months held in reserve, Mortgage Insurance, Commission, Recording Fees, Document processing fees, etc.

I can't see your paperwork from here so it's difficult to know exactly what is going on but I don't understand why your agent can't answer the questions you have. Ask her to consult with her broker or call her mortgage lender contact. Surely there is a realtor in her office who can help figure this out.
Web Reference:  http://www.mariatmorton.com/
1 vote
Mike Walker, Agent, Akron, OH
Mon Sep 15, 2008
I wouldn't be overly concerned with accepting an offer on your home where the buyer is using FHA for financing. Many lenders are doing more FHA loans than previously. The market has shifted for both lenders as well as Realtors, and some lender programs are no longer available. Is this a quick closing? Will this close by the end of September? You might wish to verify with the buyers lender that this program is still available. Many of the down payment assistance programs are gone and will not be offered any longer.
Web Reference:  http://www.ShowMeTheKeys.com
1 vote
Bob McClure, Other Pro, Walled Lake, MI
Mon Sep 15, 2008
good morning......the 6% seller concession that your buyer is requesting is very common and perfectly acceptable with an fha purchase......if there is a little money left that is not being used for what the total closing costs and pre-paids actually cost....what i usualy do is use it to give a bit of a break on the interest rate to the buyer....it also depends on how much you are selling you home for....is it 6% of $95,000?.or 6% of $250,000?..6% of a lower sales price still means that the buyer needs to come up with more cash to close...6% of a higher sales price, most times will zero out the costs that the concession is intended to pay...also.....you as the seller, cannot give the buyer anything towards the downpayment...unless you are a direct realtive with a gift of equity.....what is done is that the seller contributes all or part of the required 3% of the sale price to a charity for the "gift downpayment program?"....they take a fee, and wire the difference to the title co. for closing.....those programs will no longer be honored by hud after the end of sept-08..lastly...as a seller....if your home is in good condition, and has been kept up....the fha appraiser now only considers safety and structural issues important....not cosmetic issues.....since i am sure your home is in great-saleable shape...you really have no concerns to deal with except what you will net after closing paying the concession...i hope that helps.....bob mcclure- mortgage now- farmington, michigan.......licensed in 22 states including your's....
1 vote
Realtynovice, Both Buyer And Seller, Akron, OH
Mon Sep 15, 2008
Thank you all with your very helpful answers!! I made one small change and sent the contract back to my agent to forward on. Btw--I did discover if the buyer is using Ameridream there is an administrative cost payable by the seller to them for "washing" the down payment. and it's all legal--maybe not moral, but legal. What a wonderful world, no wonder the financials are in such a mess.
0 votes
Realtynovice, Both Buyer And Seller, Akron, OH
Mon Sep 15, 2008
Thank you all (well maybe not the first answer--it was as useful as a pimple on my rear).

Let me clarify a bit. I have no problem with the FHA and the 6%, per say. What I really want to know (and should have asked clearly) is what types of costs are there to the seller due to the FHA and the 6% funding. What pitfalls should I look for or should I protect against (counter) in my acceptance of the offer?

And ,Yes, I asked my realtor and she said she's not a lender and doesn't know these answers (she suggested I call a bank and ask) but has done these types of sales before without problem.. (and people wonder why the public has a low opinion of the profession)
0 votes
Keith Sorem, Agent, Glendale, CA
Sun Sep 14, 2008
Hello....is anyone home?
The market has shifted.
My suggestion is not to take my word for it. Please consult with your REALTOR.
Most markets are buyer's markets. We ALL need to become accustomed to dealing with FHA...unless you'd prefer not to sell.

Just my opinion. (Disciiamer).
0 votes
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