Is the Fannie Mae home style loan competitive enough?

Question

Are people finding that in this market it’s harder to get under contract on a property with a Fannie Mae Homestyle loan? My husband and I are trying to purchase, but the prices in ATL are crazy. We thought it’d be a little easier to find a home that required some renovations and do the rehab/mortgage wrapped in one. But our realtor is saying that people are less inclined to sell to you if you have this type of mortgage, making it take longer to close/harder to find a property. Is that true?

Rick Albert · Answer

It is all about presentation. I competed against 16 other offers with my FHA 203(k) loan and won. I have a client buying a house with a 203(k) loan and beat out two other offers. It's doable.

Your agent needs to communicate the following:

1) Depending on the condition of the home, some lenders will not lend on it. Your lender doesn't care as long as you correct it. That gives you a leg up on conventional buyers.

2) You can pay a better price than cash buyers.

3) The appraisal is based on the after repair value, therefore you could potentially pay a better price than others because they may run into appraisal issues where you wouldn't. With the 203(k) loan the lender will lend up to 110% of the appraised value. That means even if the appraisal is short, you may still be good to go.

Good communication skills are important in this market. It is doable.

Matt Devincenzo · Answer

Agreed with Rick that communicating why they should take your reno loan offer will help. That said, as someone who sold a property to a 203K buyer...it was rough. The loan process required a lot of back and forth because of the rehab limits and the buyer can't perform any work etc. Also the 203K had certain mandatory fixes which IMO they shouldn't have required, but the buyer had to allow...then pushing their loan limits etc. Obviously more cash to close or a higher DP could help with that. But the overall process is just more work since you're increasing the lender's participation in the transaction. So for the right offer I'd sell to one again, but I'd absolutely want enough to compensate for the additional headaches that inevitably come with.

Michael Dumler · Answer

@Charlene Byssainthe any conventional financing makes it hard to acquire property when you're up against cash buyers who can pay substantially over asking. A home that requires some renovations is probably the most sought-after and high-demand product for hedge funds and real estate investors alike right now. It's never been harder to get a property under contract. Fannie Mae HomeStyle mortgages are however better than an FHA 203k loan in my opinion, simply due to loser restrictions on the renovation. Nonetheless, sellers nine times out of ten are going with cash buyers that can guarantee a closing. Your real estate agent is correct.

Is the Fannie Mae home style loan competitive enough?

Most Popular Reply