The FHA loan is a government home loan that’s insured by the Federal Housing Administration. This mortgage option is popular with veterans, first- time home buyers, and those with a lower than average credit score since the income and credit score requirements are less stringent compared to conventional loans. However, in today’s robust housing market where multiple offers are the norm, some sellers are opting to steer clear from offers contingent on an FHA loan. While an FHA loan is perfectly legit, a seller might have some cynical assumptions about an FHA borrower, they may have uncertainties about their home, or they may not fully understand this type of loan. If you’re an FHA home loan buyer, here’s a few reasons why a seller may be hesitant to accept your offer and what you can do about it:
Understandably, a seller wants a smooth closing. Because the requirements for an FHA loan are not as strict as with other types of loans, a seller may fear that when credit, income, employment, etc…are checked during the underwriting process that the deal will fall through. Financial problems or other red flags along the way could cause the buyer to withdraw their offer. The seller should remember that FHA loan “pre-approval” is a thorough process and hopefully these issues can be resolved before an offer is made.
Appraisal & Inspection Issues
An FHA appraisal is different from a conventional loan as it focuses more on health and safety issues rather than the actual home value. The home must meet HUD (Department of Housing and Urban Development) requirements. Home inspectors will look for issues such as structural damage, electrical problems and water damage. The cost of any repairs can fall on the buyer and/or the seller depending on the purchase agreement. Depending on the purchase agreement. Either way, the whole deal can be put on hold until the required repairs are made and the home passes inspection.
While a seller is not legally required to accept your offer regardless of the type of home loan, you can ask a buyer “why” if your offer is turned down. If they’re concerned about your financial stability, you can try and save the deal by offering additional earnest money, waiving seller concessions or making a no-contingency offer. If they don’t give you a solid answer, there could be defects in the house that they don’t want revealed through the FHA inspection process. If you proceed with the offer, do your research and request a thorough home inspection.
If you have your heart set on a certain house and a seller won’t accept your offer because of an FHA loan, there are other options. If there are issues with the home meeting the HUD guidelines, you can offer to buy the home “as-is” and accept the home with any defects. You can talk to your real estate agent and/or home loan professional about getting a different type of loan. However, if an FHA mortgage is the best fit for you, don’t give up. There are always sellers out there who would be happy to work with you.