FHA Blues: Different Buyers, Same Stories

FHA Blues: Different Buyers, Same Stories
By: Nicholas A. Dunlap, CPM

Articles and statistics continue to illustrate to the public that FHA financing is the most commonly utilized source of financing in the residential real estate market at present. However, professionals in the industry are experiencing difficulties when working with it. The difficulties are not so much in obtaining the loan, but gaining acceptance of the offer contingent upon FHA financing. Sellers and listing agents are reluctant to work with FHA financing based on the sometimes absurd requirements that can be made prior to issuance of the loan.

For example: cracked stucco, a worn roof and other such items often must be remedied in order to close escrow. As a result of these requirements, prospective FHA buyers are usually unable to go through with the purchase as they do not often have the cash reserves to fund the repairs. This leaves only the sellers to foot the bill. With the dwindling equities of homeowners nationwide, such costs are not well received. Therefore, the deal falls apart and the property goes back on the market.

At present, the residential real estate market in Southern California boasts some of the best opportunities we have seen in years. However, the difficulty in obtaining financing is limiting the number of buyers in the marketplace able to capitalize on these deals. While conventional financing (loans in which buyers are required to put 10% minimum down) and VA loans (those guaranteed by the US Department of Veteran Affairs) are all seen as superior to the FHA Loan, cash is still king. Often times, sellers will hold out for an all-cash offer and dismiss any offers contingent upon financing by simply not responding to the buyer or their agent.

The result is maddening for prospective buyers looking to benefit from low interest rates, tax credits and great opportunities. And yet for sellers, a cycle of multiple offers and above list price sales is created as they (sellers) capitalize on the many buyers who are working within a tight and ever-constricting timeframe to achieve their goals to buy.