Should Sellers be Leery of Accepting Offers
from Buyers Approved for FHA Financing?
Years ago and even now, it's not unheard of to hear Sellers express a wariness about accepting offers from FHA Buyers ...
Typically these Sellers' uneasiness is based on stories they've heard about the difficulty of passing an FHA Appraisal. They think they'll be required to make their home "right for FHA Financing".
The prevailing thought is that FHA ... or the Lender ... will require a long list of repairs to be done prior to Closing. That a Seller needs to get their home in FHA "financeable" shape and the costs of doing those repairs will be all theirs to shoulder.
I can tell you, having been an FHA-Approved Appraiser (and now as a Mortgage Originator), that I've always felt that those fears were/are often a bit unwarranted by the real estate community and the selling public. In many cases, the issues raised by an Appraiser can be addressed reasonably easy.
In my experience, the below are typically the property issues raised most often by FHA Appraisers:
In my experience, the below are typically the property issues raised most often by FHA Appraisers:
- Peeling paint: Was and still is an issue for homes built before 1978. (Lead was used in paints until the year, 1978. Lead poisoning is a health concern/issue.)
- Certifications Required: Certifications for Roofing, Heating, Plumbing, Electrical, Structural Contractors were most often requested. (Functionality of "major components" of real concern as determined by the Appraiser of Record)
- "Nit-Picky" items: Items determined by a so-called "nit-picky" Appraiser
Common sense will tell you ... FHA doesn't want that to happen. They don't want to be the "cause" of that happening to anyone.
FHA believes a certain level or standard of property "fitness" should be met. But requests for property repairs are often seen as unreasonable and placing hardships on Sellers.
As a result, Sellers oftentimes object to FHA Financing on a Contract - even when the requests by FHA Appraisers for repair(s) are justified. Their rejection of FHA Financing offers can create roadblocks to Contract completion ... or undue hardships on the prospective Buyer.
As a result, Sellers oftentimes object to FHA Financing on a Contract - even when the requests by FHA Appraisers for repair(s) are justified. Their rejection of FHA Financing offers can create roadblocks to Contract completion ... or undue hardships on the prospective Buyer.
Recently, I was assisting Borrowers where the Sellers of the property they hoped to buy insisted on Conventional-ONLY Financing. Due to "credit issues" the Borrowers involved were subject to what in financing is called "a Waiting Period after a Significant Event".
Their loan application could have been approved with FHA Financing terms, but the waiting period in play created a hard stop for a Conventional Loan with "normal" terms and rates.
Their loan application could have been approved with FHA Financing terms, but the waiting period in play created a hard stop for a Conventional Loan with "normal" terms and rates.
In this particular case, the Sellers were NOT willing to accept the offer made by my Borrowers with FHA Financing. That decision in turn, kept their property on the market.
Why did they make that decision?
The Sellers were unwilling or unable to "expose" themselves to an FHA Appraisal. They didn't want to face any possible FHA repairs or conditions interjected by an Appraisal for FHA Financing purposes.
But in actuality, in today's current market, what do FHA Appraisers typically require? What repairs do they typically require to be made?
Unfortunately, there is no one definitive resource that provides an answer. Even FHA handbooks and publications themselves offer somewhat vague direction.
The stance by FHA in recent years has been to move the responsibility to the Lender's Underwriter and the Lender's assigned Appraiser. They must determine the repair needs of a given property. The days of ordering certifications and other costly unwarranted repairs on an FHA Appraisal are pretty much a thing of the past.
While it must be pointed out that every market varies ... and every Appraiser's stance also varies ... FHA Financing does NOT have to be viewed as a "deal killer".
For the most part, HOME INSPECTIONS have taken the guesswork out of the FHA Appraiser's "to do list". The role of the Appraisal should now be viewed as more of a "Value Protection" for both the Buyer and the Lender.
For the most part, HOME INSPECTIONS have taken the guesswork out of the FHA Appraiser's "to do list". The role of the Appraisal should now be viewed as more of a "Value Protection" for both the Buyer and the Lender.
For deals to die on the vine over long-standing old-school mindsets surrounding the negatives of FHA Financing, was/would be unfortunate. Those of us that must know what an FHA Appraiser will require regarding appraised properties, should keep "safe, sanitary, and sound" in mind as our rule-of-thumb in these instances.
Below I've included an example of a case where the sellers DID comply with an FHA contract and resulting Appraisal ...
Here is the verbiage included in the FHA Appraisal and what was required by the FHA-Certified Appraiser involved during that transaction:
Here is the verbiage included in the FHA Appraisal and what was required by the FHA-Certified Appraiser involved during that transaction:
"The Subject was built prior to 1978 and thus there is a possibility of the existence of lead-based paint in the home."
- Evidence of cracked and peeling paint was found at the time of the inspection on almost all surfaces of the exterior of the home, garage and the shed
- Home requires exterior scraping and re-painting on nearly entire exterior siding, trim, and soffits
- Shed, garage, and house exterior also show minor signs of wood rot
- Shed was locked at time of inspection. A re-inspection will be required to view shed interior
- The patio is dug-out of the original grade and has three perimeter walls surrounding. All perimeter walls present falling hazards and exceed 36 inches in height. A full-surround safety railing is recommended to prevent accidental falling
As that is just what happened. The Sellers made the required repairs quickly and relatively easily (and inexpensively) and kept their transaction moving forward to successful completion. Their desired result ... a SOLD home ... was achieved.
Each Seller must determine their own transaction's path and destiny. The best outcomes, however, are found when all options are left on the table and considered fully.
I say in appropriate situations, those options should include the consideration of accepting a Buyer making an offer with FHA Financing ...
I'm easily found at:
Gene Mundt
Mortgage Originator - NMLS #216987 - IL Lic. #031.0006220 - WI Licensed
American Portfolio Mortgage Corp.
NMLS #175656
Direct: 815.524.2280
Cell/Text: 708.921.6331
eFax: 815.524.2281
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