Making An Offer With an FHA Loan

With the changes in the mortgage industry many home buyers are turning to FHA Loans because they still offer the opportunity to purchase a home with little or no down payment. There has been a noticeable increase in buyers using FHA even among my own clients.

The problem is that there are a lot of misunderstandings about how this works, some of which I addressed in my article, "Myth-Busting FHA Loans...". Today I wanted to talk about how to structure an offer when you're using FHA.

Two main questions-
1. Should we ask for the Seller to pay for some or all of your closing costs?
2. Do we need to ask the Seller for down payment assistance?
Both of these items are built into the offer, often on raising the sales price so that the bottom line is still agreeable to the Seller.

Closing costs are extremely common to ask for. The costs vary, but most programs will only let the Sellers pay 3% of the purchase price toward your closing costs and prepaids. This will save you (as the buyer) some out-of-pocket cash and basically let you roll these fees into your loan. We want to make sure to include this in the offer.

The misunderstandings come when we're talking about down payment assistance. Currently, the Seller can contribute to a 'charity' such as Ameridream which, in turn, will contribute toward the down payment. There are rumors that new legislation in congress will change this, but for now, it's still happening. (Read how it works here.) It's best to talk to your lender about this because often then banks will have specific wording that they want put in the contract to make this happen. So, in addition to asking for closing costs, we would ask for 3-5% of the purchase price to be paid toward the down payment.

Help the Seller Understand
Often, the biggest hurdle to overcome with an FHA-financed offer is helping the Seller understand it. They often think that the Buyer is trying to be sneaky and take advantage of them. The key is to tabulate all of the numbers and focus on their net proceeds- how much they will make from the sale. It can also be helpful to compare these numbers to how a conventional loan would be handled so they see the differences.

The goal in every negotiation is agreement- a win/win situation. For the most part, Sellers seem open to these type of offers, but it takes a little more time to educate them and build trust. As it becomes more common, I'm sure it will get easier for us all.

-Peter

www.NashvilleCityHomes.com