Sellers agent is against using an FHA loan

30 Replies

Hi First time buyer here. Im giving an initial offer on a duplex and my agent says the seller is against me using an FHA loan. According to the sellers agent the house won't pass due to paint chips. Has anybody worked with an FHA inspection/ Appraisal and can shed some light on what that looks like?

@Joshua King seller has option to fix the paint. It could be a very costly option depending on scope of paint job. Seller may not want to deal with it and would rather want a conventional or cash offer.

Hi Joshua, are you aware that you can get an conventional loan with just 5% down?  I don't know how much you have for the down-payment but if you can come up with a little bit more down payment this might work.  Good luck & go get it

@Joshua King an FHA appraisal stays with the home for a period of time. If the seller pulls the home off market to fail an FHA inspection he has lost time and potentially money and has an appraisal that will stick up the home.

He doesn’t want to fix the paint because he doesn’t think he has to. He believes he will get a conventional or cash offer that is either with no inspection or he feels he will be able to negotiate through it.

There is no negotiation (typically) with an FHA inspection. Issues have to be resolved. Sometimes the buyer will handle the issues but in this situation it sounds like the seller doesn't want to risk it.

@Joshua King is it a multiple offer situation? If so you need to have the highest offer for one. You can remove your inspection contingency since you are getting an FHA inspection. And you can offer to do any repairs that come up from the inspection at your expense. You are taking on some risk at that point because you can't be exactly sure what they will find but, if you have a good agent they should know.

Increase your deposit to show you have some money and are serious. At that point your offer has mitigated the downside of accepting an FHA offer and you may have a chance. You need an articulate agent to be able to explain this to the list agent. Sometimes list agents don't understand the nuances and will advise their client one way or another based on not fully understanding the specifics of an offer.

Your agent should submit the offer, explain it in the email body, and call and explain why it’s a solid offer.

FHA loans are a bit of a hard sell in this market because they're not a clean and simple process. Many sellers (depending on the market) are looking for offers that are cash with no contingencies at all. So coming with FHA financing is considered a "weak" offer. The FHA loans are a wonderful tool that allows home ownership for many but it's just not something some sellers want right now.

@Matthew Irish-Jones that's almost a spot on analysis of what me and my agent did. We decided to move forward because we are the only offer on the table and the house has been on the market for 225 days. The seller seems motivated to sell but the sellers agent is still weary of the FHA. So we waived the inspection and our deposit money down. Fingers crossed!

@Joshua King

Congratulations on putting an offer on a property. FHA loans have a bad wrap because of FHA appraisals. Yes, they are more difficult and sometimes harder to pass approval than conventional loans. With FHA, lenders will also ask for you to have 3 months of reserves to close the loan.

With that being said, FHA loans are the best way to go to start your investment journey. I used a FHA loan to purchase my first investment property. It was a four unit and I only had to put $7k to close on the deal. I had to have $10k in reserves also to close the loan. FHA was a game changer for me. Less than 2 years later, I own and manage 15 units, and it all started with a FHA loan.

If the seller doesn't want to use the FHA, then move on. It is a great financial tool to use to get your foot in the game at lower cost than a conventional loan. I am also an agent, well an Investor Agent, and I work with first time investors and I always suggest using a FHA to get their first property. It is a great tool to use with House Hacking. I closed on one deal last month and have another closing in December and both are using FHA.

I hope that helps you are your journey. If want to chat further or have more questions, feel free to contact me. 

Beleza,

Charles Anthony

 

@Matthew Irish-Jones I’m not sure why it sat on the market for so long I’m guessing this is part of that. I walked the property and damaged look minimal guts are clean and nice basements good. Maybe I’m underrating the paint problem. The only other thing I saw that was worrisome was condensation on the roof in the attic.

@Joshua King
1) when was the home built? Prior to 1978 lead paint is possible.

2) is the house occupied? If not, you can paint yourself, with permission in the contract, prior to the appraisal. FHA has some other small things that will cause a failed inspection/appraisal....trip hazards (raised thresholds), exposed wring, etc.

@Wayne Brooks the house was built in 1900. I’m 90% sure it does have lead paint. The house is currently unoccupied. We’ve made it clear that I am willing to do some of the repairs to close the deal. For example removing paint and repainting seems like a small problem compared to something structural, electrical, plumbing, or HVAC. Not saying it can’t get expensive but to give up on a deal over it before you even know seems premature.

Condensation in the attic is a result of inadequate venting. Can probably be remediated fairly easily. Also, there may be inadequate attic insulation. (homes built in this era didn't have any.)

@Joshua King

Have them fix the paint.

If you haven't given the bank a signed contract yet just increase the offer amount by the cost to fix the paint. If their paying your closing costs you could also take it out of that amount.

Or

You could take the risk to fix the paint before owning it.

Or

You could roll the dice that the inspector won't take issue with the paint. There is some leeway and it varies from inspector to inspector a little.

Sometimes you get a book of fixes sometimes they just don't like the garage door.

@Joshua King Your agent can have the seller agree to repair the discrepancies before you buy. I haven't used an FHA, I've used a VA loan and they're also strict about any discrepancies before purchase.

@Joshua King you don’t have to worry unless you start creating lead dust.

If it’s an entire building it’s going to be tough to just sand and paint the problem issues and you may need a lead certified painter which will include potentially “tenting” one side of the house at a time while they remediate.

You may also be able to side over it if you can do it without creating lead dust.

@Joshua King FHA has a bad wrap! Old-timer agents usually care a lot, us newer folks don't really care. General rule of thumb is that FHA is less restrictive on credit and more restrictive on house. Conv is looser on house and tighter on credit. That being said, it all comes back to the individual appraiser and actual defects of the house, as observed by the appraiser. Don't confuse a Buyer's inspection for an appraisal. I've seen inspectors come back with 180 pages in a report, and then when an appraiser visits, only find 1-3 things wrong, with most of it is correctable. On a recent deal, Seller forgot to install vapor barrior. Once we were informed. Seller had it fixed next day, we called appraiser back, appraiser revisited following day, still closed on time. General rule of thumb for exterior, is that bare wood can't be showing. I'vr seen Seller's paint only the area called out, with colors not even close. If an appraiser calls it out, for that loan to go through it must be fixed or an explanation provided that appraiser accepts. I've seen houses sell FHA with sill plate issues, or firewall issues, etc. If a defect is called out, that doesn't mean Seller has to fix. Seller could say no, then put back onto market and not accept FHA. I have had many clients use FHA, most of the time buyers use it because they want large closing costs aside from credit challenges, but if comps are appropriate, it often still works out. A lot also depends on the skill of your agent in negotiation.

@Joshua King   Before you agree to remediate lead paint, dig into your local laws. 

Here in Maine, lead remediation that's more than 2 square feet requires the use of a state-certified lead remediation company.  With the oldest housing stock in the country, those are expensive and in high demand in Maine.

FHA, USDA and VA loans all require substantially the same inspection and there is an enormous list of items that will trigger a failure. A tiny amount of peeling / chipped paint, a cracked window, uneven sidewalk, wobbly handrail, roof with less than 5 years estimated life - the list goes on and on.

In some areas VA adds a mandatory wood destroying insect report that the buyer is not allowed to pay for. When I was a Realtor, I was asked more than once to pay for that inspection. I always refused.

This is why any of these loans are considered to be weaker than conventional.  A conventional appraisal is much less demanding and is normally focused on the major systems being functional.  Plumbing, heating, electric, septic.

There's a good explanation of FHA requirements here: https://www.cardinalfinancial....

Good luck!