Let's get this out on the table right away. There is nothing "wrong" with an FHA loan, and if you are being told by a Loan Officer that you need apply for one, there is probably a good reason for it. It's in your best interest to fully understand what those reasons are because the FHA loan carries a certain stigma with it.
Why are they questioning my ability to purchase???
If you share your "fresh off the press", FHA pre-approval letter with your Realtor or the Seller's agent, you may get some intrusive questions fired your way that you must be ready for.
We are in a Seller's Market right now so you must understand what you need to do to WIN for yourself. That also means you need to understand what the Seller is thinking and feeling as well as the advice they are getting from their agent. Here are some tips:
Sellers hate FHA because:
- Realtors: The average age of Realtors is somewhere in the mid 50's and they are still in the mindset that the government loans take longer and the fees are higher. This is simply not the case anymore.
- Required repairs: The appraiser for an FHA loan is also an inspector and is required to list any items that should be repaired to make deem the home "livable" or to meet minimum safety standards. The myth here is that FHA appraisers are stricter than conventional loan appraisers.
- Competition and Cash: Approx 40% of all homes purchased in Metro Detroit is now with cash. That is a HUGE number and it shows no signs of slowing down. If they are not paying in cash, many Sellers' gravitate towards pre-approval letters showing the borrower putting 20% down or more. Low appraisals have made this a common practice nationwide.
- Condos: In order to obtain FHA financing for a condo, the entire development must be FHA approved. This is a costly and time consuming process. Click Here if you want to check to see if the condo you are interested in is FHA approved.
Buyers love FHA because:
- The new "subprime": The FHA loan makes more sense for home buyers with credit scores between 620 and 660 than a conventional loan. The rate and fees make the FHA loan the most desirable option for lower credit score borrowers. We will line them up with a conventional loan so you can see how they compare.
- Low cost of entry: 3.5% down payment requirement and all down payment money can come in the form of a gift. There is no requirement for the borrower to have 3% or 5% of their own funds into the transaction like on conventional loans.
- Increased Purchase Power: The Debt-to-income ratios are significantly more lenient than conventional loans with mortgage insurance. We see loans being approved up to 56.99% on the back end debt ratio for FHA as compared to 45% for conventional loans.
Ok - Now is where you want to speak with an experienced Mortgage Broker who can help you understand not only how the loan program works, but all of the questions you will be getting peppered with here shortly. It's our job to prepare you for the Journey ahead - Click below to reach out to us for help.
About the Author: Kirk Chivas is a licensed Loan Officer and co-owner of First Commerce Financial, LLC, a mortgage brokerage based in Wixom, Michigan. With over 17 years of experience, Kirk has committed to providing Michigan residents with accurate and honest mortgage advice. If you have any questions about your current or future mortgage needs, please feel free to ask Kirk a question over on his website at: www.firstcommercefinancial.com/.