If you're selling a home, here's some advice about buyers seeking FHA loans:

[MineralMan]

Last edited Thu Nov 11, 2021, 02:00 PM - Edit history (1)

Try to avoid accepting an offer from a buyer who will be financing through the FHA.

We're almost at the closing on our previous home, but the FHA loan is much harder with underwriting than a conventional loan. We had to jump through some almost ridiculous repair demands so that the buyer's loan could get underwritten. Almost anything can block underwriting. A bit of peeling paint on a detached garage, a crack in a storm window...whatever. Worse, whatever it is must be repaired before the underwriting can be approved.

Stuff that a typical buyer would simply ignore can be flagged by an FHA loan appraiser and bring the sale to an immediate halt.

So, if you have more than one offer, opt for the one with a conventional mortgage loan and look away from the FHA loan buyer. Not only will it save you money, it might possibly save you a great deal of time in the closing process.

Edit to add: This is for people's information. We are in the process of selling our previous home to a first-time homebuyer with an FHA loan. I'm not suggesting that people not do so, but sellers should be aware of possible delays if that is the case. For some, that matters a great deal.

[Johnny2X2X]

1. FHA is the best loan a lot of buyers can get though

You'll generally get a better interest rate going FHA. Get the inspection done early, most FHA repairs are minor, chipped paint is a big one they make you fix.

Right now it's so competitive for homes, FHA borrowers are really missing out on a ton of homes already. FHA is the only option for many lower income borrowers.

[fescuerescue]

5. Best for the buyer. Worst for the seller

It's true that most FHA demanded repairs are minor.

That's the point. They nickel and dime you with silliness.

Worse yet though, the closing gets extended and that costs real money.

[fescuerescue]

2. Yea those are horrible to deal with

My folks buy and sell houses quite a bit.

They had so much trouble with FHA buyers, that they won't accept an offer that uses FHA.

Just not worth the hassle.

[cinematicdiversions]

3. I get ya don't sell to poor people, first time homebuyers yadda yadda...

Truth is I bought my home FHA and had zero of the issues you list above.

Of course I wasn't buying a rundown shack so milage may vary.

Still leaving money on the table because someone young or working class wants to buy your home seems a strange thing to promote.

[fescuerescue]

6. It's not the buyer. It's the mortgage loan type.

All things being equal, an FHA loan is FAR worse for the seller than a traditional loan.

An FHA loan almost always mean less money to the seller.

Plus a whole lot of extra hassle, cost and time.

[cinematicdiversions]

8. One thing I have noticed is people are in all their principles

Until it effects them directly. All in favor of immigration rights but they don't withhold ss for the help

Support public schools but send their own kids to private school.

Are against global warming but they post new vacation snaps from their weekend in Iceland.

Help someone who really needs it and sell your home to a veteran or a member of the working class. That extra 10k or two months isn't worth your soul.

[fescuerescue]

9. that's all true

But you really don't know the backstory when you receive an offer to sell a house.

In fact, everything you see paints the buyer in the best possible light.

And when people are selling the most valuable asset they have, when given multiple choices, very few will take the road to leads to less money, more hassle and more time in support of a situation that they aren't informed about.

Also, when you are selling a home, the buyers tend to be in similar circumstances. If you are selling a mansion, it's because you a wealthy selling to a wealthy person. If you are middle class, you are selling a middle class home to middle class buyers.

And if you are poor, you are selling a lower class home, to other poorest buyers.

It's pretty rare that a wealthy homeowner sells to a poor buyer, or vice versa. For quite obvious reasons.

[Johnny2X2X]

11. That's simply not true

The seller 4 out of 5 times won't notice a difference with FHA vs Conventional. It usually results in no hassle at all. And the purchase price is the purchase price, the offer is the offer, there aren't extra closing costs that the seller absorbs with FHA. You're getting multiple offers for houses these days, take the most money, if an FHA offer is higher than the rest, you're going to walk with more money.

Discriminating against FHA loan offers just keeps lower income folks from home ownership. It's not illegal to do so though, there is some added risk, but it's pretty minimal unless you're selling a dump.

[fescuerescue]

12. 20% of the time is substantial.

[hlthe2b]

4. Pretty soon the only ones able to buy houses will be large investment groups--- keeping those of us

who would use a VA or FHA loan SOL. sigh...

[MineralMan]

18. Well, we are selling our previous home to a buyer with an FHA loan.

I'm just providing some information, so people will be aware of the difference to the seller. It didn't matter to us, in terms of timing, but it might to someone else.

Information is good.

[Ocelot II]

7. This brings back some memories... Many years ago, late '70s,

my then-husband and I were shopping for a house; we were first-time home buyers and we qualified for an FHA loan. We found one we liked and our offer was accepted by the seller, but then there was the FHA.... This was an older house with three bedrooms on the second floor. The smallest bedroom, which the sellers had used as a child's bedroom, had no closet. So, according to the FHA, it wasn't really a bedroom, which made the house a two-bedroom house. And, as such, they wouldn't lend us enough money to buy it. We said we weren't going to use it as a bedroom anyhow, but they didn't care. They told the sellers that if they wanted to sell the house as a three-bedroom house they would have to build a closet. We said if they build a closet we'll just tear it out. They didn't care. So the sellers built the little closet in the little bedroom; then we got the financing, closed the deal and finally moved in. One of the first things we did on moving in was tear out the closet and turn the room into a music room where my ex could teach piano lessons. He still lives in that house and still teaches piano lessons in that closetless non-bedroom.

[Freddie]

14. Similar story about our first house

Early 80s, interest rates were about 15% so houses weren’t exactly moving. We had to do FHA because of the low down payment. It was an older row home in pretty good condition but the tiny third bedroom not only had no closet, it had no electrical outlets! The sellers’ solution? They packed the room so full of junk that the inspectors didn’t bother going in there.

[Trailrider1951]

10. Yes, what you say is true, but

I wanted to sell my home to a couple of my friends who were disabled/low income. It took months to get the loan approved. "No bare wood, no peeling paint" took extra time and money on my part, but they really wanted my house and I wanted them to have it. They finally got it and were absolutely thrilled to own their first house. Me, I got to move from Bumfu*k, Texas to Western Washington. Everybody happy!!

[Hoyt]

13. That leaves out a lot of buyers, unfortunately. Maybe our leaders should re-evaluate the red-tape.

[MineralMan]

16. Yes, that's unfortunate.

I agree, but sellers often need to move a house for financial reasons. That isn't true in my case, but we had to spend additional money to get the house ready for an FHA inspection, despite the buyer's being perfectly happy with the house as it was. It didn't matter to us, really, so we hired a crew to come in and repaint the detached garage and take care of some other minor deficiencies, after consulting with an appraiser who does FHA appraisals.

It worked. The buyer's loan is approved and the closing date is fast approaching. But, FHA requirements can catch sellers off-guard and delay a sale for a month or two to get someone in to do necessary work. Right now, that can be difficult, due to a shortage of workers.

[Ocelot II]

28. I get why the FHA has some of its rules; it doesn't want lower-income people

to end up unwittingly buying dumps and it doesn't want to finance the purchase of dumps. Of course they should be looking out for problems like defective wiring or plumbing. But basing a loan on whether or not a bedroom has a closet seems kind of dumb, and in our case it was a problem and a delay for both us and the sellers, and the requirement was simply a rigid requirement that various boxes be checked: a room can't be called a bedroom unless it has a closet, notwithstanding that bedroom closets are a relatively new invention and a lot of old houses didn't have them - people just bought wardrobes. There are useful regulations and then there are dumb regulations. Buyers like us in those days, lacking the down payment required by conventional lenders, shouldn't be prevented from buying a house because of FHA requirements that don't really improve the house but only cause extra expense for the seller and delay and inconvenience for everybody.

[a kennedy]

15. Wow, thanks for this info.....never would have know that.

You’re just a wealth of information, and I sooooooooooo appreciate it all.

[kcr]

17. More and more

It seems I have to check to see if I'm at DU anymore.

[xmas74]

19. Same

I've felt that way for a long time.

[MineralMan]

20. And why do you say that? People selling homes need information.

We're almost at closing on our previous home. The buyer has an FHA loan. I was not aware of the potential for delays with those loans. I don't care. We're not in a financial crunch if the sale closes later than we might like. Others might be. So, information.

[kcr]

21. People do need information

I'm sure most know they don't need misinformation from randos on the internet who are bigoted against poor people. Especially since it could hurt them. If the best offer on the table is backed by an FHA loan, that's the one they should take. If your home is a dump that needs repairs, you're going to need to address them either way.

[fescuerescue]

22. He said nothing negative towards poor people

He spoke about how difficult the FHA organization is to work with.


FHA is a multi billion dollar government agency. Not poor.

FHA COULD choose to not be a giant pain the but to work with, but they don't.

The are swimming in money and beat up sellers to the point that experienced sellers know to choose a NON-FHA loan over an FHA loan.

[kcr]

24. It's misinformation aimed at the FHA

A program aimed at making homeownership more affordable and accessible. It's easier to do during a market favored towards sellers, because then it's easier to sell a dump.

[MineralMan]

23. I'm not a "rando on the internet."

Nor am I bigoted against poor people. As I said, we're selling our previous home to someone with an FHA loan. I have learned something from that. So, I shared that information.

What constitutes the "best offer" is not just a matter of price, actually. Sellers have to take into consideration the time required for the sale to close, too. Often they are selling to buy a different home for whatever reason. Few people can buy a new home and then sell their previous one after they do. Most often both transactions happen at the same time, so delays are compounded. Due to an inheritance, we were able to buy our new place without needing the proceeds from the previous home. So, we didn't have that problem, and were glad to sell to a first-time homebuyer who needed the benefits of an FHA loan. Not everyone can do that.

The problem can be that the seller's broker or realtor doesn't inform them of issues that might affect the time to close. Ours did tell us, so when we got and accepted an offer that was dependent on an FHA loan, we paid an appraiser with FHA loan experience to do an additional inspection. Then, we did the work that he said would likely slow down the closing.

You are jumping to conclusions here.

[kcr]

25. So, let me get this straight

You, in your benevolence, were kind enough to help some folks out, so now you'd like to share that experience and help us out by... Telling us how we shouldn't do the same?


Okay.

[MineralMan]

26. Wow! No, I'm telling people information they might not know.

As I have made clear, I did not discriminate against a buyer with an FHA loan.

[kcr]

27. Right. You didn't discriminate against a buyer with an FHA loan

You merely turned around and came on DU and told everyone here to do so.