Why would seller reject offers with FHA/Repair financing?

Question

I'm scrolling through the MLS and came across a property with a description that says "Cash, hard money or Conventional only... no FHA or Repair loans." Why would a seller intentionally limit the types of offers he/she would receive?

I assume that the reasons are connected to convenience/ease of sale - is that right? The seller just wants to sell FAST?

Are there any other important reasons why a seller may not be interested in selling to buyers with specific types of financing/payment?

Daniel Taylor · Answer

@Jeff Copeland: I didn't do a deep dive into the property, but a glance at the photos DOES reveal a property in need of work (cosmetic and otherwise), so it's very likely that one or more of the FHA conditions you named are not met.

@Marc Winter: seems like 20% is a lot to give up. I'm curious -- are you just dropping numbers to make a point or do you believe that many experienced sellers really would price speed and certainty at 20% of a property's value? (I ask this knowing, of course, that situations vary.) Either way, I do see your point.

**Thank you both for your replies.

Marc Winter · Answer

@Daniel Taylor--look at two scenarios;

A. An end-user makes an offer at full price, subject to FHA financing.

B. An investor makes an offer 20% under asking, all cash, no contingencies, inspectons, or appraisal necessary, closing in 30 days or as soon as title clears.

The A offer might or might not actually close, or close with a price reduction for repairs if the seller is willing to negotiate.

The B offer will close for the amount contracted within a time-certain period.

Of course, it always comes down to seller motivation, but many MANY experienced sellers would take offer B over offer A because there is a price/cost/value in the security of a strong deal.

Jeff Copeland · Answer

This is most often because of the condition of the property.

FHA in particular has very specific property condition requirements that must be verified by an FHA appraiser. These include:

• Roof - Must have at least 2 years of service life remaining.
• Plumbing - Must be functional with no damage or leaks.
• Hot water - Must be functional.
• Electrical - All receptacles must function normally, GFCI receptacles required in kitchen and baths, no exposed wiring.
• HVAC - AC is not required, but if ductwork is present, then AC must be functional. Heat is required.
• Windows - Screens are required if there is no AC.
• Kitchen - Must have a functioning sink and cabinets.
• Bathrooms - Must be fully functional.
• Pools - Equipment must be functional and water must be clear enough to see bottom.
• Paint - No peeling paint (especially if date of construction is pre-1978).
• Floors - No bare concrete. Floor covering must be serviceable.
• No rotten wood (most commonly found on soffits and fascia, and around door/window trim).
• No "wood to ground" (no wood siding or trim withing 6" of ground).
• Termites - Inspection is required if there is evidence of termites. Treatment and repairs are required if inspection confirms termites present.
• Structural - No settling or structural issues present.

So there is no point in entertaining an FHA offer if any of these issues are present. It would be a waste of everyone's time and money.

Even with conventional financing, there can't be things like unfinished rooms that have been "gutted".

And repair loans like 203k come with all kinds of red tape and delays (especially post COVID).

And finally, as you mentioned, speed is often another factor. Cash deals can usually close in 1-2 weeks, if not sooner. Financed transactions are more like 4-6 weeks.

Why would seller reject offers with FHA/Repair financing?

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