Buying A Home
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
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Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
Are buyers with FHA loans undesirable?
We just got an offer on our townhouse, and the buyers will have an FHA loan. All I know about FHA loans is that they might require additional home inspections and higher safety standards. Is there anything else I should know or worry about? Our home for sale is a 4 year old townhouse, so I'm pretty sure since it's so new that it will meet any FHA safety standards. No lead based paint, etc. Thanks.
Re: Are buyers with FHA loans undesirable?
We just bought a house built in 1928 with an FHA loan. Normal inspection and I was shocked the appraiser didn't mention the peeling paint or broken windows. It was even appraised for 10k over the purchase price.
The buyers of our house had one too and it was a very smooth sale.
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From what I've heard people get concerned that since the buyer typically has a smaller down payment they assume that means they won't have the money for other costs (special assessments, etc) or that they won't be able to afford their mortgage. I'm not saying its right (and I don't agree with it) but I'm guessing thats the logic other owners have in terms of getting FHA approval for a building.
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It depends on the community. We were looking at a townhome community where as of May they are not accepting buyers with FHA loans anymore. The reason being that there were enough people delinquent on their monthly maintenance fees that FHA loans were being denied so they just got rid of them altogether. With FHA loans, they don't just look at the home, but at the community. So they are taking into account how many units are being rented out as well as delinquent monthly maintenance charges. Those things all add up to being a 'not desirable' community and FHA sometimes won't back it up.
If I had to pick between selling to a buyer with an FHA and selling to a buyer with a conventional, and all other terms were equal, I would pick conventional. That being said, there aren't many "buyers" out there and sometimes sellers have to work with what they've got.
In my market, where average homes are around half a million, it's hard for buyers to have a 20% down payment. But they do offer conventional financing with less than 20% down for qualified buyers.
Have your listing agent perform due diligence on the buyer before you sign a contract and take your home off the market. Deals fall through all the time, especially in this market, due to buyer financing.
I have to ask, why? Usually, you can only use FHA to buy your first home, right? Are you that worried about selling to a first time home buyer?
I would've said the same thing (I'd choose a conventional offer over an FHA buyer, if all other things were equal). The FHA appraisals are generally tougher in my market (and VA appraisals are even tougher than that).
Think about it this way- put yourself in a bank's shoes - the bank is going to be way more careful about appraisal/valuation and approving a mortgage if a buyer is putting 3.5% down (which means the bank is forking over 96.5%) vs. a buyer putting down 20% (and bank forks over 80%).
Said differently, the bank generally has more to lose with an FHA loan with 3.5% down than a conventional with 20% down.
Usually, you can only use FHA to buy your first home, right?
This is False. Part of the original intent of the FHA program was for first time home buyers, the program is open to anyone wanting to purchase a home.
My reasoning is why pull your home off the market for a buyer who may not be able to actually close? People who can get conventional financing are more qualified that people who only qualify for FHA loans. And I mean "more qualified" in the banks eyes, not my personal thought.
This also hurts the current home owners who are already living in your community who don't have the equity to refinance conventionally without bringing money to the table. An FHA loan allows you to go up to 97.75% LTV.
Of course they are. Some HOA's don't allow them at all (mine doesn't) because it means a buyer with fewer resources and one who is more likely to go into foreclosure or do a short sale (thus driving down the value of the entire building) since he starts with less equity. The inspection process is tougher. The appraisal is stricter. We bought our first home in 2005, in a bidding war, and the seller wouldn't consider offers with less than 20% down. But this is a different market and, IMO, ANY offer is better than no offer at all. So as b/n FHA and conventional, I'd always prefer conventional but if I were selling I certainly wouldn't reject an FHA offer if nothing else were on the table and if my HOA allowed it.