Why Shortsales of Foreclousures Bannks reject FHA loans

Question

I would like to this Forum to understand how big of a problem is my current problem, I'm trying to buy a second property and turn  the current one into a rental, I have an FHA loan, I presented 4 offers to 4 diferent properties and all the offers were rejected by the respective banks because " they do not want to deal  with FHA, loans. Which triggered the following questions:

1. What is wrong with FHA loans
2. How is possible that bank with a property sitting in the market for 357 days in the market still prefers to reject a full price offer just because is FHA?

I would like to have an idea of how big this problem is and how many people  may be affected by it.

Jon Holdman · Answer

FHA requires an inspection of the property and that it meet certain minimum standards.  You say "bank with a property sitting in the market for 357 days".  That makes me think you're making an offer on a REO.  REOs are rarely in the condition required by FHA.  So, the bank knows FHA won't approve the property.  It sounds like all your offers were on REOs.  I don't think you're going to get one of those accepted.  Many REOs won't even qualify for conventional financing, let alone FHA.

FHA loans have been discussed here a bunch lately, even for fixed-up properties.  Another problem with FHA loans is that the appraisals have been coming in very low.  Even if you and the (non-bank, non-REO) seller agree on a price, the appraisal can come in much lower.  For FHA, the appraisal "sticks to the property".  Meaning that appraisal applies not just to you but to any FHA buyer.  More than one person has said they have stopped accepting offers with FHA loans becuse of these problems.

Nellys Flores · Answer

Thanks to all for the feedback, let me answer some of your questions:
Jon,  there bank owned properties in great conditions in an era of  Northern Subs of Chicago, and you are right the argument is that appraisals are low and very demanding, but honestly I'm still surprise that the banks prefer to keep waiting, I guess is their prerogative. I would like to know how many people is out there with this situation  because is frustrating you have the financing and your are being ignored.  Barry I agree with you I will keep trying I guess I will get one property. Chris is crazy out there I jumped into the market very excited thinking I will get anything I want and  there are many out there outbidding me as well that's the other situation, besides getting rejected is if I get consider the next thing is being outbid, is funny in the last 3 weeks I make offer to houses that never got and offer I submit mine and  when the house is contingent the bank got more offers. I'm trying  to be patient, now that spring is coming I think as a buyer I will have more options.

Amanda Cluett · Answer

Lending moneys in the banks to get a mortgage wont help anything at all.  You could not save from them.  Its them would save from you.

Barry Johnson · Answer

I would say keep trying. I am not sure about the REO statement Jon made above. REO's in my area are priced so they usually get offers in the first few days and are sold in less than 30 days.

I would however definitely agree that you need to be making offers on houses that you know can pass FHA inspection guidelines. That is the single largest hurdle for any FHA loan. As for the reasons Jonstated above, I would try to stick with a conventional sale, there are a few still out there I think.

Chris Hanisco · Answer

I hope you get it! I am having the opposite problem. My husband and I are trying to buy a certain house with cash (pre-approved short sale) for our family to live in, and outbid (by $6200) by someone with a Rural Development loan, which I understand is the same or more stringent than FHA. We offered over the asking price with cash, as-is, no contingencies except a home inspection for peace of mind. Before this the house sat for several months.
The sellers picked the other riskier offer because they offered a little bit more, but they are up for foreclosure on March 1st which is in 2 days! We then put in a backup offer for $85,000 cash in case the bank rejects the other. We haven't heard yet.

The house might pass the inspections. I know of a couple of things that it won't pass but they're minor, like putting GFCI outlets in the kitchen and installing a couple of downspouts. It's definitely a fixer-upper but I'm not sure if there's anything bad enough to ward of a RD loan.

So, I'm kind of hoping the bank won't go for a FHA/RDA-type loan in this case. I'll be interested in seeing what others advise you. So far it's been really helpful. Again, I hope you have more success with buying with an FHA loan. Good luck!!

Why Shortsales of Foreclousures Bannks reject FHA loans

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