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Short answer: it’s either ignorance on the seller’s part, or the property cannot pass the FHA inspection that is required.
Long answer: Lately, FHA loans are harder to finish and close. There is a set of FHA rules. In addition to those rules, “investors,” the entities that buy the “paper” on Wall Street, can add their own “over-lays” to the rules. For instance, if an investor decides that anyone below a 620 credit score is too risky for their appetite. Well, no one can make them buy a loan with a 580 credit score borrower. Therefore, no lender will tolerate a loan on their books that can’t be sold to provide liquidity (cash) at some point. They won’t do the loan, even though “the rules” may allow for it. Seller’s get nervous at the time-frame needed to close because there are lots of little details to pay attention to.
Sellers may feel that an FHA borrower is inherently more risky. That is not true. It simply takes a broker with FHA experience and current working knowledge to know whether or not the file is doable from the get-go. In fact, as mortgage insurance companies increasingly stop insuring conventional loans with less than 20% down payment, by the time a seller can actually find someone with that much cash, you could have already closed your FHA loan! Simple ignorance, in many cases.
If the property can’t pass the inspection, you can easily do the FHA 203K rehab loan. Sellers get nervous over the extra length of time these can take…but if the property is in bad condition, by the time they find someone with 20% AND enough cash to fix it…hello, you’ve already closed your FHA loan. Simple ignorance.
FHA loans are no magic pill…they can take longer to close. But there is no better medecine for this ailing lending market than only 3.5% down payment, 6% allowable contribution from the seller and an option to finance repairs right into the original loan.
If you’re in Georgia and looking for a FHA Loan or FHA 203K Loan then call me. If you are in California than call my friend and fellow loan officer Brian Wiesner. We know our stuff and he knows his! Here is his original post from the best FHA site on the net, MyFHABlog.com.
http://www.myfhamortgageblog.com/2009/06/why-wont-sellers-accept-my-california-fha-offer/
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FHA 203K loans require a little more coordination than a traditional loan would. In order to ensure we have a closing that is as smooth as possible and ON TIME I have created this post to guide Realtors on how you can us assist us AND your clients in getting our FHA 203K loans closed.
1.) Purchase Contract – Needs to indicate FHA 203K financing and needs to provide at least 45 days to close. We need contingencies that are slightly longer than normal so we can get the inspection AND the contractor bids.
2.) Utilities — ALL utilities need to be on at the time of home inspection AND appraisal. Get them on and leave them on until we have an appraisal that indicates functioning systems. Why? Because when a foreclosed / vacant house sits, and the systems are inactive for an extended period of time, they tend to break. For a home to be FHA approvable we need functioning systems. With a 203K we can correct any issues with plumbing, electrical or HVAC, but we need to know if they are broken or not. Therefore, we need utilities ON. If utilities cannot be turned on we can still work with it, but we’ll add between 10-20% in contingency reserve on top of the renovation escrow account.
3.) Inspections – Beside your home inspection, which should be standard on any purchase, FHA 203K loans may require additional inspections if the purchase contract or pre-existing conditions call for them. If the house is vacant for more than 30 days and is on septic then we need a septic inspection. If the purchase contract calls for a termite inspection then we need the termite letter. Be aware that depending on property condition additional inspections may be required. On full 203K loans (loans with more than $35,000 in renovation OR any renovations that are structural) you will be required to pay for a HUD Consultant to inspect the property and review the contractor proposal.
FHA 203K renovation loans are the best loan for this market now, but it is no secret they require some additional effort and some additional time from the participating parties. Realtor’s take heed, your first step is to find a loan officer with renovation loan experience. If you do so you’ll make your life and your clients lives a little less stressful!
Want more info on renovation loans? Give us a call! We don’t just write about FHA 203K financing we ACTUALLY CLOSE THEM!
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