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.

Future Plans for the City of Urbana

As your real estate agent, one of my tasks is to be your area expert.  If you are looking to buy a home, purchasing in a location that suits your needs best is often just as important as the home itself.  If you are thinking about selling, I can use my knowledge of the area to market your home in a more comprehensive way to appeal to more buyers.

City Sign from the City of Urbana website

Yesterday morning I had the opportunity to meet with several of Urbana’s city officials to discuss the City’s future plans for schools, parks, roads, commercial expansion, and other items of interest.  We spent about 2 hours going through Urbana and discussing the various points of interest we passed.  I have narrowed down the highlights for you so that it won’t take you two hours to learn what I learned.  I will start with some of the recent news-worthy items:

The Olympian Drive expansion – The projected start date for the expansion will be in 2013, with a plan to extend Olympian Drive from Duncan Rd in Champaign to Lincoln Rd in Urbana, with a bridge over the railroad tracks just West of Lincoln Ave.  At this point, the project is estimated to cost $20 million, with most of it ($18M) coming from state and federal funding, and Champaign/Urbana contributing $1M each.  The long-term plan is to extend Olympian Drive all the way East to Cunningham Avenue.  If 2013 is too long to wait, the next road improvement project is to re-construct Airport Road East of Cunningham Ave.  This project is scheduled to begin this summer, and the road improvements will service the Landis Farm and Somerset subdivisions (almost as far east as Brownfield Road).

Menards store on High Cross Road – You’ve seen the Menards signs for years, but no signs of development.  A few years ago, Menards purchased about 300 acres of land along High Cross, with the intent to build a Menards store and 500 residential homes (with Menards materials – genius!).  With the economic slow-down, however, the plans have been put on hold indefinitely, although the land has already been purchased.  Supposedly, Menards has purchased land in other areas of the Midwest also and is now trying to determine which of the areas they will pursue first.  Urbana is “doing what they can” to try to be at the top of that list.

Recent Pool Referendum – The people have spoken, and Urbana will be constructing a brand-new family aquatic center on Broadway Avenue, just North of Crystal Lake Park.  The referendum’s promise is for the facility to open in 2013.  The plan is to have an area with various pools and points of interest to appeal to a multi-generational clientele.  For instance, if grandparents want to take their grandchildren to the pool, there will be something for everyone to do.  At this point, the design and engineered is being prepared in order to start getting bids for the project.

The Historic Lincoln Hotel – If you’ve been through downtown Urbana recently, you’ve probably seen/heard the construction around this building.  The building has been purchased and will be renamed to the Urbana Landmark Hotel.  The building is currently being re-roofed and should partially open later this year.  The owner’s intent is to fully open to the public in 2012 as a full-service hotel, with “historical flavor and a high level of service”.

The old Denny’s building at 119 N. Race – The city does not own the building, but has given permission to the owners to utilize city funds to demolish it.  The footprint of the old building will be a parking lot and a green area.  The Courier Cafe might want to expand into this new area with outdoor seating, but at this time there are no plans for re-development.

If you have any specific questions about Urbana, please let me know!  I might have answers readily available for the following topics, in no particular order:

– UCBB (Urbana-Champaign Big Broadband) $20M grant

– Plans for school improvements throughout Urbana

– New offerings at the Urbana Free Library

– How some of the various projects around downtown Urbana will be financed

– The Lincoln exhibit at the County Courthouse

– Boneyard Creek $7M transformation plan

– Campus improvements, like the Gregory Place complex and Goodwin Avenue

– Future of the Windsor Swim Club (across from Meadowbrook Park)

– Urbana High School future athletic facility

– The Urbana U-Cycle recycling program

– The Urbana Landscape Recycling Center and its available services

– Sewer back-up assistance from the City of Urbana

– Carle Hospital expansion plans

– 5 Points development at Cunningham/University

– Plan for Weaver Park

– Beautification plan for North Cunningham Avenue

– Future expansion of bike paths

If you don’t see the topic that you’re looking for, just ask me!  The aforementioned items are just the things that I learned more about yesterday.  Over the years, I’ve accumulated a wealth of knowledge about the local area.  It was great to have an opportunity to get a quick update, though, so that I can have the most recent information for you.

Avoiding Real Estate Pitfalls Prior to Closing

Whether you are considering selling or buying your home, it is common to go through times of stress and through times of joy.  Regardless of how stressful things may be, when a home goes pending (a contract has been accepted), it is fair to expect that things will go normally, and in complete accordance with the dates and criteria set forth in the contract.  After all, when everything is written out in black and white, there is no room for mistakes, right? Continue reading Avoiding Real Estate Pitfalls Prior to Closing

“Unique” homes

Have you ever gone into a house, whether it is while home-buying or visiting a friend, and thought “What were they thinking?!”? Whether it is outlandish wallpaper, clutter everywhere, everything being one color, or creepy art, some touches of “character” in a house can lead to a slower sale, lower asking prices, or simply no interest. (click for picture!)