Are 3% down FHA firt time buyer loans being approved?

18 Replies

Hello all,

Would like to know if anyone has experience with 3% down FHA first time loans are currently being approved.

We have an accepted offer on our house, but the buyer just indicated that they are doing a 3% down FHA loan.

Of course, this is 3 weeks after we accepted the offer, and so now our house has effectively been off the market for 3 weeks.

I'm a bit nervous because we are moving out of state with our 5 children. This puts me in a tricky spot for many reason which i assume most of you can understand / relate to.

Any feedback is greatly appreciated.

3% or 3.5%? 3.5% is a typical FHA minimum down, regardless of first time buyer or not. Your purchase contract didn't outline/specify this? Your agent didn't advise you of this?

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My lawyer spoke to the buyers lawyer. Here in NY we use lawyers for everything.

Originally the buyer told my agent he was doing 5% conventional.

My lawyer drew up the papers and sent them out.

Few days later, He said he was doing 5% down FHA, again my lawyer changed the contract and sent it out for signature.

Now the buyers lawyer called and said, the buyer is now doing 3% down FHA, first time buyer, and wants a $10,000 concession to cover closing costs.

So this buyer wants to finance 97%, as well as the closing costs.

Am I insane for even considering this?

My concern is i do everything to get ready for the closing, like find and buy a home in Florida, move my family etc.. only to find out on day 43 that the bank denied his mortgage. Or even worse, he is $10K short because the house didn;t appraise for enough to cover the loan. Then i am stuck either taking a 10K loss, or lose the deal.

Dazed and confused.

It's a valid concern, particularly with events you described, which indicate a buyer who was not preapproved, probably not aware of all the costs involved and is maybe grabbing at straws. I would require him to go to a lender that I trusted for a preapproval, including 2012, 2013 tax returns, W-2's, verifications, proof of down payment cash to close, etc. If your lender approves him, then you sign a contract.

Is there an apprasial problem? or is he wanting closing costs covered? We regurlarly pay or contribute towards closing costs, but typically, 3,000 on occassion up to 5,000. These are houses 100,000-200,000 range.

Thank you all for the comments. I really appreciate you taking the time to read and respond.

They were pre-approved, and my lawyer did see the pre approval letter before we sent out the contract originally. Something sounds fishy here, because we were told they were approved for 385k max. But now they want an approval for $395k? I guess 10k is not much. Does that sound reasonable, or did someone lie to me?

I told my agent not to take the house off the market, or to stop showing it. She told me once we accept an offer as courtesy we need to stop doing open houses, but if she gets a request for a private showing, she will do those.

I told her that was ok, but not to change the status on MLS. But now looking back at it, i think she changed the status on MLS, and that's why there was no interest.

As i write this out I am getting very upset with my agent.

Typically when you have this many changes on a purchase contract there is an issue with the buyers qualification. However that does not mean the deal can not be consumated. Request your agent to contact the buyers lender to get a copy of the current loan approval with remaining approval conditions. That way you will know exactly what is going on. If it does not look good your agent can send the buyer a request to perform.

Originally posted by @Account Closed :
Hello all,

Would like to know if anyone has experience with 3% down FHA first time loans are currently being approved.

We have an accepted offer on our house, but the buyer just indicated that they are doing a 3% down FHA loan.

Of course, this is 3 weeks after we accepted the offer, and so now our house has effectively been off the market for 3 weeks.

I'm a bit nervous because we are moving out of state with our 5 children. This puts me in a tricky spot for many reason which i assume most of you can understand / relate to.

Any feedback is greatly appreciated.

If you're nervous I would recommend that you have the buyers offer and qualifying documents pre qualified through your agents preferred lender to ensure that this buyer can in "fact," purchase your home using the FHA financing that he/she claims.

FHA is min 3.5% down payment not 3% unless if you the buyer is using a down payment assistance program or other assistance.

I always have my listing agents " buyer to be pre-approved through sellers choice of preferred lender prior to acceptance."

Hopefully things go well for your closing.

I personally close FHA, VA, or conventional loans just as fast 14-21 calendar days average.

Good Luck

I would not be upset with your agent for changing the status in MLS. That is common practice in almost every state once you sign a contract. It is very misleading to have it in MLS and not indicate it is under contract and would be confusing to agents if the contract did fall through, because how would they know it is now available if the status never changed?

If you were a buyer would you want to go look at houses that were under contract but you thought were not?

FHA loans are closing, around me anyway, however they typically won't allow more than 2.5% in closing concessions. So 10k seems like a lot unless it's an expensive house. Good luck.

Originally posted by @Josh C. :
FHA loans are closing, around me anyway, however they typically won't allow more than 2.5% in closing concessions. So 10k seems like a lot unless it's an expensive house. Good luck.

The guidelines are actually 6 % seller concessions allowed with a min 3.5% down payment for FHA.

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@Mark Ferguson - We do not yet even have a contract. She took it off 3 weeks ago, and we still don;t have a contract. That's why I'm upset. I agree once the contract is signed it should be updated, but to this point everything is just a verbal acceptance of the offer.

@Josh C. - The sale price is $385k, but in NY closing costs are high due to pre payment of taxes, insurance, flood insurance etc..

@Albert Bui - Is that a hard and fast rule of 6% seller concessions?

Also thank you for the suggestion. Since my lawyer now has to make a new contract due to them changing the funding, I am taking your advice and adding in there

" buyer to be pre-approved through sellers choice of preferred lender prior to acceptance."

As well as, I decided i would add that the buyer will include a check for $10K to be put into an escrow account to be used towards funding any appraisal issues due to the concession they requested. If the house is appraised for full value, then no worries they get their full $10k back. If not, we will already have the funds to cover it so we can close the deal.

Additionally, I want to see if my lawyer will put a time limit in there that the buyer must sign within 3 days.

My agent just told me that the buyers are cash heavy, but don't want to part with it. So i think this option is the best route.

Why someone would have enough cash for a 20% down payment and not use it makes no sense to me. Why pay PMI, higher interest rate, and additional costs? I don't get it.

Additionally, I want to thank everyone here for reading, and posting replies. This is a great community, and very lucky to have found it. I hope i can contribute as I learn more as well.

Originally posted by @Account Closed :
@Mark Ferguson - We do not yet even have a contract. She took it off 3 weeks ago, and we still don;t have a contract. That's why I'm upset. I agree once the contract is signed it should be updated, but to this point everything is just a verbal acceptance of the offer.

@Josh C. - The sale price is $385k, but in NY closing costs are high due to pre payment of taxes, insurance, flood insurance etc..

@Albert Bui - Is that a hard and fast rule of 6% seller concessions?

Also thank you for the suggestion. Since my lawyer now has to make a new contract due to them changing the funding, I am taking your advice and adding in there

" buyer to be pre-approved through sellers choice of preferred lender prior to acceptance."

As well as, I decided i would add that the buyer will include a check for $10K to be put into an escrow account to be used towards funding any appraisal issues due to the concession they requested. If the house is appraised for full value, then no worries they get their full $10k back. If not, we will already have the funds to cover it so we can close the deal.

Additionally, I want to see if my lawyer will put a time limit in there that the buyer must sign within 3 days.

My agent just told me that the buyers are cash heavy, but don't want to part with it. So i think this option is the best route.

Why someone would have enough cash for a 20% down payment and not use it makes no sense to me. Why pay PMI, higher interest rate, and additional costs? I don't get it.

Additionally, I want to thank everyone here for reading, and posting replies. This is a great community, and very lucky to have found it. I hope i can contribute as I learn more as well.

Yes these are the guidelines for 3.5% down payment you can get up to 6% seller concessions which has never been an issue for me since CA is a high price state we tend to only see max 2-3% from the seller. In states where the sales price is much lower you may need all 6% to just pay for the non reoccurring closing costs.

As to why someone would want to put the least down or pay PMI, its either a financial planning decision or an emotional one. They value their capital's opportunity cost beyond the cost of acquiring the banks funds. FHA is probably around 4.00% 30 year fixed + 1.35% FHA MMI = 5.35% cost of funds annually. If the buyer's opportunity cost of their money is at a hypothetical of 15% cash on cash then it may be more beneficial for them to borrow as much as they can and reposition their capital to more productive uses else where. Everyone will have their fine balance between invested funds and safety. Sometimes buyers need reserves or cash to feel "secure," even while it is not most prudent.

I hope I was of assistance, good luck!

In my area if a buyer wants seller assist we usually add that amount to the selling price if the appraisal will allow the increase. As mentioned by others if the buyer has 20% to put down why not go conventional and avoid PMI for the life of the mortgage? I would keep the listing active and take back up contracts. Food for thought.

Geez, I thought you had signed contracts too. Change it to active, now. Don't sign a contract until After he has been preapproved, and I mean with actual tax returns not just W-2's, credit report, etc, and Your lender says it looks good. Most of the "preapproval s" generated out there for potential buyers are not worth the paper they're written on. Placing the house back as active, and making sure the buyers agent knows, should create some "get to it" actions. You are certainly correct to be concerned.