The FHA Roars Back
The Federal Housing Administration (FHA), which backs riskier low-down-payment mortgages popular with first-time home buyers, is back within federal guidelines. It needed its first taxpayer bailout just two years ago. Today it is in line with federal requirements. FHA mortgages allow buyers with credit scores as low as 580 to obtain mortgage loans with only 3.5% down and with low fees.
I am not going to speak to the wisdom of putting down only 3.5%, much less giving six-figure loans to those with credit scores at 580. However, there is no question that stable federal agencies are better than unstable ones. There’s also no question that the FHA is beneficial to home sellers at all price points.
“But wait. My home isn’t the type for buyers who can only marginally afford a house. Why should I care?”
Simple. While those FHA buyers won’t buy your home, their purchasing of another home makes it possible for your buyer to buy your home. Let’s say the FHA buyer purchases a $100k property. That $100k seller buys a $200k property. The $200k seller buys a $350k property. That seller buys from someone else, and so on. The end of these “chains” could easily be a million dollar seller, someone who definitely does not need FHA backing to buy property. However, without the FHA guaranteeing that marginal $100k buyer, the million dollar sale never happens. Or the $200k, $350k…
“Okay, so the FHA is helpful to buyers. Is there anything I need to know about it as a seller?”
Absolutely! The FHA is a double-edged sword. There is additional paperwork for everybody and a special appraisal escape clause. The FHA conducts its own inspection of the property in addition to the standard buyer’s home inspection. Properties can pass the buyer’s home inspection but fail the FHA inspection.
Good agents know how to guide sellers around FHA pitfalls before an offer is ever submitted.
“Is the FHA process similar to Veterans Administration (VA) and US Department of Agriculture (USDA) loans?”
Yes! While there are differences, there are more similarities than differences.
Are you a seller facing the possibility of a FHA, VA, or USDA buyer? Would you like to talk with an agent who understands the process and who will help you avoid the pitfalls that buyers with government-backed loans bring? I’m always ready to help you prepare for a successful sale. Please call or send an email; it’ll be my pleasure to help!