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Thursday, September 17, 2015

Home Seller Tips: Why would a seller not accept VA or FHA financing?

One of the decisions a prospective home seller must make is the type of financing, if any, they will consider when listing their home for sale.
Here is my answer to the question in a nutshell although the rest of this article explains my reasoning:   My recommendation is all sellers should consider all options that the condition of the house and circumstances of the sale allow including any first time home buyer programs available.
While cash is always desirable most buyers finance their home purchase because of the size of the expenditure.   Besides, the mortgage interest paid is still a tax deduction as well.

As a listing agent the more options a prospective seller will consider then the bigger the potential buyer pool.

Why wouldn't a seller consider allowing a purchaser to finance with a VA or FHA loan?

VA loans are very attractive for those qualified for them since they allow for a zero down payment purchase.  I think the perception of some is that a VA buyer has no money in the bank (reserves) so they must use the VA loan.  This is not always the case.  The VA loan does not require the purchaser have additional mortgage insurance which is a tremendous savings (a big reason to go VA over other types of loans).

The VA loan is a benefit provided to those who served this nation - not a hand out.  

FHA loans are attractive options for buyers as well.   One beauty of the FHA loan is the opportunity for buyers to finance with as little as 3.5% down payment.  It also allows for closing cost assistance from sellers.

A couple of reasons I have heard for sellers to not consider VA or FHA.... appraisals and time to close (extensions, delays, etc).

Regardless of the type of financing (including conventional loans) there are a lot of issues that can cause delays in closings.  The key is having open communication between seller and buyer agents as well as the  mortgage professional.  If buyers deliver all required documentation and inspections and appraisals are performed in a timely manner there should be little opportunity for delay.

As for the inspection problems... The VA and FHA appraisal process includes a bit more "inspection" than a conventional mortgage.   If a house has known problems or potential problems (like roof, AC, plumbing, water intrusion, electrical, etc.) then a seller should nix any FHA or VA loan potential upfront.   The reality is some of these problems could restrict financing completely. (If a home is older consider a pre-listing inspection.)

In the current Brevard County, Florida market it is common for sellers to receive multiple offers.  Should a seller take the cash only offer over offers with financing?  What about an FHA offer versus a VA offer?  Does the type of offer matter more than the price?

Consider all the offers very carefully.  Look at the whole offer as more than the price (the terms including the types of financing, inspection contingencies, requests for closing cost assistance, timeline for closing, etc.). 

A few final thoughts on VA and FHA loans...
  • Both loan types take about the same in my experience (as an agent and consumer).   
  • As for financing condos the complex must be VA or FHA approved before financing is possible.  
  • As to properties in need of repairs - An FHA loan may still be an option.  Although I have only had a couple of buyers use the program over the years [] it worked for them.   Talk to a lender about the FHA 203(k) loan although most buyers prefer a move in ready home to one with work to be done before move in.  Still, it took little a more work on everyone's part but it is possible.

I am not a mortgage expert.  However, I do have some local contacts who are well versed in conventional, VA and FHA loans.  I will be quite happy to put you in contact with one of these Brevard County, Florida lenders, just ask!

agent@moving2brevard.com



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