We are seeing a number of Pre-Approved buyers who placed offers losing out to competition. Here are the some of the tactics that buyers and agents were considering when placing an offer.
1) Conventional Loans are more appealing than FHA ► This is not the case. The house is either in good shape or it is not, and sellers are more concerned with the cash needed to close.
2) Large down payments must be an advantage ► This may be percived to be true, but a 20% down payment from a buyer only offering to put $100 up for the Earnest Money Deposit (EMD) smells funny to me.
3) Pre-Approval detailing they can qualify for more than the offer price ► This also is not advantageous considering it only takes about 5 minutes to get a pre-approval letter from a loan officer.
Offer price is the most important piece to the seller and listing agent. The buyer’s credibility and seriousness can be clearly stated by the EMD they put up with the offer.
For example, let us look at two offers on a home.
1) $180,000 offer with a conventional loan, 5% down payment and $1,000 EMD.
2) $180,000 offer with a FHA loan, 3.5% down payment and $6000 EMD.Offer 2 indicates a much more serious buyer with the higher EMD and cash needed to close will be less of a concern.
We’d love to hear your thoughts on this so PLEASE comment below!
Posts tagged FHA
Larger EMD = Offer Accepted!
96.5% vs 97%
For the last few years, FHA loans have dominated the low down payment space in the mortgage world. We are finally seeing some positive signs in Michigan that things are getting better. One of those signs is that conventional loans have loosened up and are now allowing a 3% down payment with PMI.
Let’s compare both programs to understand the benefits of each.
There is a belief that FHA appraisals have a higher property standard or that more repairs would be required. This is not true as conventional appraisers will be looking for many if not all of the same aspects of the home.
Call us for details as these programs and requirements are constantly changing. The good news is that the feel from lenders is the bottom of the housing cycle is clearly behind us.
Condo = Caution
Buying a condo in Southeast Michigan continues to challenge our clients’ patience as obtaining financing for these properties has been difficult, but not impossible. There are two types of condos to consider: Detached Site Condos and traditional Attached Condominiums.
Detached Site condos are views as “single family homes” in the eyes of the lenders. Normal financing options exist on these properties with no extra hurdles to dodge.
Here is what is different and what you need to keep on your radar with attached condos: Conventional vs FHA
- Conventional Loans:
- Condo Questionnaire Required – Cost $150-$250
- 15% of owners are delinquent on association dues – No loan
- Rates & Fees slightly higher – Investors feel more risk with these properties
- FHA Loans:
- Key Point – Is development approved for FHA financing?
- Recent changes mean all condo developments need new FHA approvals
- No more grandfather cause
FHA approval is about a 30 day process, but is a necessary stage for every attached development. Keep these things in mind when considering a condo and remember: CONDO = CAUTION
NOTE: New Construction Loans currently have no conventional financing options available, but the builder can get FHA approved for financing options.
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