Do You Have an FHA Buyer
Offering to Purchase Your Home?
FHA loans have a long history of helping consumers successfully buy homes. They have helped homeowners purchase more than 46 million single-family and multifamily homes since its inception back in 1934.
Here's why I say that:
- The minimum down payment needed to qualify for an FHA loan is lower (can be as little as 3.5%)
- Gift monies can be a source of down payment and closing costs
- Minimum Credit score and credit history requirements are lower and more lenient
- Co-signing borrowers (non-occupying) are allowed
Add to those benefits listed above:
- An FHA loan also provides a buyer somewhat of a break on their interest rate as well (1/4% to 1/2%), if credit scores are equal to those utilized for comparison with a Conventional Loan
- FHA is the most forgiving loan product regarding employment requirements and allows borrowers to rebound more quickly from major credit events, such as bankruptcy, foreclosure, and short sales.
All these reasons (and more) explain why so many borrowers choose to buy using an FHA loan. It expands the number of qualified buyers capable of viewing and buying homes. That's of great benefit to Sellers hoping to sell their home.
But besides the advantage of having more potential buyers viewing your home, what do offers received from FHA-qualified buyers mean for a Seller? What decisions lie before them as they consider accepting an FHA offer?
One concern heard fairly often from Sellers surrounds one of the FHA benefits mentioned above ... credit scores. Sellers often fear that the lower FHA credit score requirements mean their transaction might not proceed to fruition or Closing. The buyers making the offer will "fall through" or face stumbling blocks on the road to Closing their loan.
In fact, data does not back up that concern. According to Ellie Mae statistics, FHA and Conventional Loan applications reach successful Closing at a similar rate.
As an FHA loan is "insured" by a government entity, all FHA loans must meet certain set guidelines. Lenders must follow these guidelines for all their FHA borrowers.
By this point, an experienced loan officer should have conducted the automated underwriting for their borrower. A pre-approved buyer in the automated underwriting system should be able to meet the final approval, assuming a thorough job was performed upfront and no "surprises" arise while in the verification process.
In other words, most reasons for buyer "fall through" should have already been discovered and addressed. So of those concerns expressed by Sellers, the ones that may have validity are those surrounding the home appraisal.
Why is that true?
It's important to point out that appraisals for FHA loans and Conventional loans are focused on achieving slightly different goals:
- A Conventional loan appraisal's aim is that of determining property value
- An FHA loan appraisal must also make the same determination, but a "review" of the property ... and its condition ... must be provided as well
An FHA appraiser also provides an estimation of the repair costs within the report. The possibility of repairs being requested is what gives some Sellers pause.
If a Seller:
- Believes that their property might have issues that would be raised by an FHA Appraisal Report, it stands to reason that they might not view the offer from an FHA buyer as favorably as an offer from a conventional buyer
- Does not want to (or can't) make repairs to their property, the same stance regarding an FHA offer might be taken
However, in most transactions, the concerns mentioned in an FHA Appraisal will likely have already been addressed by the Home Inspector (assuming one was done).
In that case, the Seller is typically responsible for items of concern and then chooses one of two paths, if they hope to move the transaction forward. Sellers choose to either:
- Make the repairs
- Offer a Credit to the buyer
Fact is, whether a buyer is at the lower range of credit scores, their down payment is the minimum required, or their Debt-to-Income ratios are on the higher side, a loan approval is a loan approval.
So the real issue at hand for Sellers is whether the potential buyer has a closeable loan? And ... will it impact me in any significant way financially by choosing one buyer over another?
In the end, a Seller is the only one that can answer that question ...
Are you hoping to Buy, Refinance or purchase an Investment Property in New Lenox, Will County, or elsewhere in the Chicagoland area?
Contact me! I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
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