Selling a home - should i go with conventional offer or FHA?

Question

Hello,

I am selling a home in Houston, have 2 offers. One is going conventional (20%) down (offer amount is 150K), and the other is FHA (152K offer with 2K) towards closing. Which one is better? Both have pre approval letters for more than this amount. Questions:

1) Which is the better offer? And why?

2) How soon will I be able to close with a motivated buyer in each scenario.

Please reply soon.

Thanks!

Asim Iftikhar · Answer

Thank you all very much!

In my case, the conventional buyer is putting up 3 times the FHA buyer as both Earnest money and option money. Cody, and Sharon, thanks again, your input makes my decision a lot easier to make!

Hope I can help someone else in the future like you helped me!

Cody L. · Answer

Require a good amount of option fee.  Forget EM.  Whoever will put up the most EM to show they're legit and plan to close, go with that one.

Other than price, option fee is always my #1 consideration when selling.  And honestly, I'll take a high option fee contract even if the pricing is a bit less.

I use that same theory when buying.   I'll tell the seller "I know I'm not the highest, but I'm going to close for sure.  I'm willing to go $5k hard day 1".    May sellers will take a lower price for a higher chance to close.

Sharon Tzib · Answer

Definitely take the conventional. I have a FHA transaction right now where the FHA appraiser demanded the foundation be inspected and the drainage around the property be upgraded prior to close. We had already had the foundation inspected and a credit back to the buyer agreed to prior to this, but the lender is demanding the repairs be done before closing, so this will delay closing at least ten days. With a conventional lender, the buyer could take the credit and perform the work themselves after close. If an FHA appraiser feels there are any major defects to the home, you will be thrust back into negotiations, and this is generally after the option period has passed. Not fun!

Chris Mason · Answer

20% down conventional is obviously the stronger offer, given only that information you have access to.

These are both $150k offers, don't let the semantics confuse you.

If the appraisal comes in $5k short, the 20% down folks are more likely to have the funds necessary to still close than the 3.5% down folks.

Furthermore, an FHA appraisal "sticks" with the property for six months, regardless of what else happens.

Mike Wood · Answer

@Asim Iftikhar I also would take the 20% down loan offer.  Since the net is the same, there is a good likelyhood the 20% down loan will close faster.  My agent tells me that FHA loans are taking 40-45 days to close.  I just sold a house to a VA loan buyer, and it took 45 days to close once we accepted the offer.  We did not have any problems, but it did take longer.

Fred Heller · Answer

My opinion only, but all other things being equal, I would go for the 20% down conventional loan.

The FHA loan, in my opinion, inherently carries more risk that it won't actually close. Many (not all) FHA buyers either have weaker credit or are in weaker financial condition than conventional loan buyers. And there are more hoops to jump through. I had a closing fall apart recently because the buyer had some long-forgotten debt to the government. It didn't show up on the standard credit report, but the lender ran her through something called Capers (?) and wouldn't approve her for the loan, even though she was already pre-approved.

Having said that, I would ask for proof of funds that the 20% buyer actually has the cash available to close. It hasn't happened to me, but I have heard horror stories of finding out at the last minute that the conventional buyer didn't have the funds to close.

Wayne Brooks · Answer

Have your agent tell the other agent it will be a condition for acceptance.  The buyers will have to allow their lender to do it.

Asim Iftikhar · Answer

Thanks Wayne, Can I as the seller ask the buyer to provide me with their Desk Underwriting reports? Whom should I get in touch with to see a DU. THey both have pre approvals from different lenders.

Thanks a lot!!!

Wayne Brooks · Answer

The net is the same, so it's all about the ability to close.  Generally conventional with 20% down would be preferred, as they are not as likely "on the edge".  But, either one could have issues the lender doesn't know about yet.  I'd want the DU (desk underwriting) reports for each one.  Time frames will be about the same, depending on the quality of the loan officer/cooperation of the buyer.