There are several reasons why Buyers can’t use FHA Financing for their home purchases. You would think that HomeBuyers should have the full range of loan programs options available to them when making their financing decisions. They DO! But Buyers are too often getting discouraged and diverted from using FHA Financing by Realtors, home Sellers, and, yes, mortgage professionals.
And many of those Buyers don’t qualify for other types of financing, which makes these reasons all the more insidious and dastardly.
REASON 1: Inexperienced FHA Appraisers. Unfortunately, the FHA program has an incorrect reputation for “difficult” appraisals, i.e., appraisals requiring lots and lots of repair items prior to closing. I hear often from real estate agents of the terrible experiences they had with FHA loans, specifically the appraisals. Thanks to the radical changes in our mortgage business since 2010, many very experienced Appraisers left the business. This deficit was eventually filled, especially as the economy improved, by new appraisers.
These Appraisers simply don’t have the necessary understanding of FHA appraisal standards. I reviewed once such appraisal yesterday. The Buyer found me after an intensive Google search for an expert mortgage professional on FHA 203k Renovation financing. She’s been trying to buy a bank-owned foreclosure property (REO) since last July! The Lender she was working with simply couldn’t figure out how to make the financing work with the renovation financing. When I reviewed the documents she submitted, I realized the main problem with her file was the appraisal.
First, this was a terrible appraisal all around: Incorrect purchase price, comments skewed all over the report instead of properly situated in the addendum, crazy comments on, and use of, comparable sales, and I mean CRAZY. Secondly, and most importantly for this poor Homebuyer, the appraiser demonstrated a crystal clear LACK of understanding of FHA “health and safety” and property condition guidelines. This appraisal is for a property in Westchester County, an area where I often hear the objection from realtors about their bad experiences with FHA appraisals.
REASON 2: Realtors’ bad experiences. First and foremost, let me state this radical idea: NO ONE gets to tell a Home Buyer what type of financing they can or can not use to complete a home purchase. But too often, that’s exactly what happens.
Because Realtors have had a bad experience with an FHA transaction—or worse, they’ve “heard” of people having bad experiences—they strongly discourage Home Buyers from using this option. I have personally had Realtors tell me on the phone, “Oh, no, they can’t use an FHA loan for this house.” No kidding! When I inquire as to the reasons why, there ensues a litany of false information embedded in the Realtor’s mind about how the FHA program works. I will then explain that, since I work for the Lender, and have extensive experience with FHA financing, these ideas in their heads are, ummm…WRONG!
Let’s be clear: if a Realtor, or a home Seller, by extension, has had a bad experience with an FHA loan, that does NOT prevent a Buyer from going ahead with the financing of their choice. I mean, what if these people once had a bad experience with home buyers who showed up driving silver four-door cars? Would they be prevented from buying the home? Of course not because that is just absurd! Well, so is the idea that a Buyer cannot use their preferred (or ONLY) method of financing a home purchase.
REASON 3: Inexperienced or misinformed mortgage professionals. The answers given to home buyers by mortgage professionals range from, “Oh, you cannot buy a home with FHA financing over $417,000 with less than 10% down.” FALSE. To, “You know, FHA financing is only for people with bad credit.” FALSE. To, “That program is only for First Time Buyers.” FALSE. To the all-time doozy, “My bank does not Offer FHA financing.” From the depository lender with the HUD Eagle on the front door!
Make no mistake, the lack of understanding of the FHA program and/or lack of experience/education by these professionals is probably the biggest reason why so many Buyers have difficulty using FHA financing (and why Realtors and Sellers have so many bad experiences).
What to do?
If you are buying a home using FHA financing, let NO ONE discourage you from using the loan program. It’s an excellent program and has been available to home buyers for more than 80 years! And, when selecting a mortgage professional, do your background research on that person’s experience in general (HERE on the NMLS Consumer Access website by clicking “Self-Reported Employment History” on an individual’s licensing profile) and for FHA financing specifically. GOOGLE is your friend!
Do you have questions? Click on ASK TREVOR and I’ll respond to any and all inquiries, even if you’re not buying a home in New York State.
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Happy House Hunting!