Top 10 ways your home will not sell on time when your buyer wants an FHA loan

Congratulations!  We have an offer on your house!  As you look through the contract, it’s easy to focus on the main terms: Price and closing date.  Here’s where you really need an agent to focuses on the details of the offer.  The details of the buyer’s financing plan are just as important as the price and closing date.  Even though you may get a top-dollar offer for your home, for our example today, let’s assume that the buyer is planning on obtaining FHA financing for their purchase.

One of the big reasons that a buyer gets an FHA loan is that it enables them to purchase a home with less money out-of-pocket.  The minimum down payment requirement for an FHA loan is 3.5% of the purchase price (the down payment can be even less when an FHA loan is paired with another loan program or grant).

With a conventional loan, or with a typical appraisal, the purpose is to identify the value of the property, based on its condition.  An FHA appraisal goes a step further and identifies the value of the property AND any safety/fire hazards and perceived major maintenance issues that could be cost-prohibitive for the buyer to take on in the near future.  Due to the low down payment requirement, this may mean that the buyer doesn’t have a lot of discretionary funds to deal with appraisal-related repairs.  The result of the FHA appraisal can extend the timeline for selling your home, or make the transaction completely fall apart.  According to local appraisers, loan officers, and issues that I’ve personally experienced through being a full-time agent, here are the most common problems that come up in FHA appraisals:

  1. Flaking/peeling paint
  2. Roof – Appraisers like to see at least 3 years’ life left
  3. Bowed or damaged foundation walls
  4. Poor grading or drainage issues
  5. Proximity to a gas station or other hazardous condition
  6. Deteriorated/rotted siding – particularly masonite or wood
  7. Electrical issues – Open splices, “amateur” wiring
  8. Bedroom windows not opening/closing freely
  9. Furnace/heating system malfunctioning
  10. Lack of a Shared Driveway Agreement
  11. Bonus Item! Issues may also come up if you have a home with a well or septic system, as banks usually require satisfactory results from a well and septic test (tests for which the buyer pays).

If a problem comes up, then what?  This is why you choose me as your agent.  From the time we get an offer, I can help you anticipate issues before they happen and address them, request that the buyer obtain conventional financing, or reject the offer if we feel that the house won’t “pass”.  Of course, issues can arise and surprises can come up.  The good news is that most problems have solutions!

Lenders/banks require that any repairs be completed before the closing (with an exception being exterior peeling paint, which cannot be addressed when it’s too cold to paint).  If you already feel like you’ve agreed to a low price, these repairs still have to be done, regardless of the value that the home appraised at.  In other words, you can have a contract sale price of $150,000, with the FHA appraisal coming in at $153,000, but the buyer still can’t get the loan if the appraisal mentions a bedroom window that doesn’t open smoothly!

Simply put, the repairs have to be done.  Most of the time, you as the seller pays to have the items repaired.  We can help you find good contractors who can do the job in a timely manner, and do it well at a reasonable price.  Sometimes, it’s a simple repair that you can do himself, like painting, working on windows which have been painted shut, servicing a furnace, etc.  Fortunately, the lender isn’t too picky about having an expert do the repairs; they just want them done well enough to pass a re-inspection by the appraiser.  When the repairs cannot be done prior to the closing (as in the example of exterior peeling paint when it’s cold, or if a roof is covered with snow and needs to be replaced), a quote normally need to be obtained from a contractor, with 150% of the quote placed into an escrow (holding account), to be done as soon as possible after the closing. These repairs are then paid for out of the escrow account, with any funds left over going back to whichever party funded the account.  Depending on how things get resolved, the buyer may be the one who funds that escrow account if they feel like they are getting a good price on the house.  However, when you need to fund 150% of a $6,000 roof project, most buyers who are getting an FHA loan don’t have $9,000 to throw into the escrow account.  As a result, the house may [sadly] go back on the market if you, as the seller, are not willing to do the repair.  Depending on the repairs, I have professional relationships with some contractors who can wait until the closing to get paid out of your proceeds if you do not have the funds upfront.

The list above is more common with older homes than with newer homes, so if you live in an older home, the arrival of spring brings opportunities to look over your house and address some of these applicable items.  For example, I have seen some lenders/banks postpone the closing due to lack of a shared driveway agreement (not uncommon in areas closer to downtown Champaign and Urbana).  So, if you share a driveway with your neighbor, get an agreement written up so that you are ready to sell in a timely manner to an FHA buyer when you call us to sell your home.  In our area within the past year, 7.72% of residential loans were FHA loans (plus 3.58% VA, which have a similar appraisal), so even if this wasn’t an issue when you bought your home because you paid cash or obtained a conventional loan, it’s plausible to get an FHA buyer, especially if you live in an area that is desirable for first-time buyers.

When we work together to sell your house, we will talk about many of the nuances that can affect your home sale, from the initial pricing and staging, through the entire “under contract” period.  We don’t just want to have a great offer; we want to have a great closing, too!  If we are going to take our house off the market for a buyer, I will help you do everything possible to ensure we close successfully and not find ourselves back on the market 60 days later (the approximate time it takes to obtain an FHA loan), having missed out on other potential buyers.

How to Sell Your Home the Right Way

Once you make the decision to sell your home, you might be tempted to just put the house on the market and get it over with as fast as possible.  After all, this can be a stressful and emotionally-draining task!

But rushing into things can show a lack of preparation and strategy. Mistakes made in the beginning of the selling process are difficult to undo. Even time – the great healer – does not help with real estate. Continue reading How to Sell Your Home the Right Way

How does “Days On Market” affect the selling price of a home?

Some of my buyers are in no hurry to purchase their home. They say something like, "We are willing to wait until a great deal comes along", or "The sellers will get desperate to sell after the home has been on the market for a long time". What does "a long time" mean? Until now, the answer to this question has been some agent’s made-up statistic or vague answer. Continue reading How does “Days On Market” affect the selling price of a home?

Details about the 2009 Economic Stimulus Package’s real estate tax credit

After plenty of rumors and speculation, the details of the government’s economic stimulus package have finally been released.  I have read the real estate portion, and would like to give you a summary. There is now an $8,000 tax credit (or 10% of the sale price, whichever is less) for first-time homebuyers.  You might have heard about the $7,500 tax credit, which is basically an interest-free loan paid back over 15 years at $500 per year.  That credit still applies if you purchased your home between April 9 and December 31, 2008. This new $8,000 tax credit is for home purchases between January 1, and December 1, 2009, and you do not have to pay any of it back (yourself, individually… all of us ultimately will have to pay back the entire $787B… the housing portion is $6.638B).

To qualify for the $8,000 credit, you must meet ALL of the following criteria: Continue reading Details about the 2009 Economic Stimulus Package’s real estate tax credit

Virtual Tours in Home Listings

Did you know that 55% of all homes for sale do not have a virtual tour?  I found this statistic as I was working on my brand-new home-search page, http://aroundcu.com/search.  Give it a try and let me know what you think of it!

The virtual tours that you will find when you search for homes are simply links to external sites that have more than the maximum 9 photos that are in the multiple listing service (MLS), the main real estate database that Realtors use.  This database is what you can access through my website.  

Continue reading Virtual Tours in Home Listings

A brief overview on Savoy real estate trends

Existing homes overall are currently taking longer to sell than they used to, but the average selling price has gone up an average of 7.4% since 2005/2006Not bad, considering the widespread belief that 2005/2006 was the “peak” of the housing market.

It is a slightly different story for new construction homes, though. Continue reading A brief overview on Savoy real estate trends