The main issues for a rehabber with an FHA buyer are:
1. Typically the selling price is more than 20% higher than the acquisition cost,
2. Often, the sale is less than 90 days after the acquisition.
Therefore, the FHA lender requires two appraisals and uses the lower one. Appraisers are all over the place these days so the seller has to be lucky twice in order to get it appraised for contract price, and this does not happen often.
And FHA buyers typicall have no cash. So if it appraises for less, you have to lower your price to the appraised value or put the property back on market, thus having wasted your time.
I recently paid the damned 3.5% down payment for an FHA buyer just to get rid of a fix n flip. Still profitable but more stressful than necessary.
Over the years I don't think I ever list a property for sale as being available for FHA or VA. Some ended up that way, but I would not even consider doing FHA today, at least not a property that was in my pocket! Well, that's IMO!
And the properties were not slums either, it's quicker, easier and in the end, more profitable, especially if I did a wrap or installment deal and then refinanced it for them conventionally. Sorry to hear you're having trouble...Good lock, Bill
1. Do not fix it so fast.
2. Do not buy it so cheaply.
3. List it for "conventional only" until day 90 and then "all offers".
4. I do have a lender that allows you to lease to the prospective buyer until day 90 and then sell it to them - though I have never tried it.
Sorry that I cannot help more - it seems every fixer I get we take 90 days...... does not say much for me.
Totally different story in my market.
Here is the way I look at it... with FHA guaranteeing almost 70% of all mortgages it doesn't make sense to artificially limit the number of potential buyers.
While FHA requirements can be a pain... as mentioned a lot depends on the lender, I have found that those investors who adjust their business approach to deal with FHA buyers are making more then reasonable profits... quickly.
Best of luck!
Agreed with Peter...
The majority of our buyers are FHA these days, and if we turned them away, we'd likely double or triple our holding times waiting for a conventional or VA buyer.
The big thing for us with FHA buyers is that we know if they use our broker/lender/closing attonrey, the deal will go smoothly and quickly (or if our broker says they aren't really qualified, we'll cut them loose). So, we do whatever we can to encourage them to use our team.
Here are some things we do to secure our deals:
1. If we're selling in under 90 days, the buyer MUST use our broker/lender;
2. If the buyer uses our broker/lender, we pay for their inspection and appraisal(s);
3. If the buyer uses our closing attorney, we'll pay part/all of their closing costs;
4. If the buyer doesn't use our broker/lender, they have maximum 10 days financing contingency and maximum 14 days appraisal contingency;
5. Buyers get a maximum 7 days due diligence;
6. If a buyer uses our broker/lender/closing attorney, they only have to put down $500. If not, they MUST put down 3.5% of the purchase price as earnest money;
7. Buyers get a maximum 30 days to close the transaction (my broker/lender has no problem getting the loans done in that amount of time). If the buyer misses the deadline, they get one 7-day extension. After that, they put down an extra $100/day in earnest money until they back out or close.
I sell all my flips almost exclusively to FHA buyers (always over 20% of what I paid). I have done pre-90 day deals.
1. The lender you use is the most important part of the transaction. Force the buyer to use your lender or don't put the deal in escrow.
2. Underwriters are asking to see the Home Inspection reports and make some outlandish requests.
3. Meet the appraiser at the property and give them a package that shows them details on the repairs you made.
4. Ask to see the conditional approval list. The doc conditions and the funding conditions.
5. The transaction will take sometime. 30-45 days to close, in my experience.
Great advice. Some follow-up questions:
1. How do you force a buyer to use your mortgage broker? What if the are reluctant to do so?
2. Typically what percent of closing costs are you willing to pay if they use your lender?
3. Does the EMD go hard after the 14-day appraisal contingency?
4. Do you mention the $100 day at the time of extending the deadline to close or do you have that mentioned upfront at the time of signing the contract?
5. Do you also have some provision in your contract to prevent the buyer from asking for frivolous repairs?
J Scott,
That is very helpful for a lot of us.
My FHA experience wasn't too painful.It was long but it wasn't bad. If you are selling in less than 90 days you can expect to have two appraisals done. If you are also selling for more than 100% of purchase price that will also require 2 appraisals.
For all appraisals it is crucial to meet the appraiser at the property so you can walk them through everything you have done to the property. At the end I give them a folder with the comparable sales, a list of the improvements I have done to the house and pictures of what the house looked like before.
I have done this on 4 appraisals and it has worked every time plus I have added an appraiser to my network which I have called later on for appraisal questions on other properties.
Although in concept I agree with J's recommendations on getting them to use your lender in reality people are hesitant to do that. Not so with the closing attorney, they usually don't care. However, both are great suggestions and I am working on how to get them to use my lender.