What To Expect with an FHA Buyer's Offer
Updated: Oct 23, 2022
As a seller in a seller’s market, you’re likely to see several offers on your home. Often these offers will vary in value & terms with the possibility to see Cash Offers, Conventional Loans, & FHA Loans. From a seller’s perspective, the biggest difference between the two types of loans is that an FHA Loan will have a more stringent appraisal process. So, what should you expect with an FHA Buyer’s Offer & why should you consider the offer?
What to Expect in an FHA Appraisal
FHA Appraisers have a special certification compared to a Conventional Appraiser, so they may take a little longer to schedule & complete the appraisal process. The additional standards of an FHA appraisal are due to the government insuring the loan & attempting to standardize the quality of living for those using the program. The standard time to close for a Conventional Loan is less than 30 days while an FHA Loan typically takes 30-45 days.
While Conventional Appraisers look at the value compared to other properties (aka Comps), an FHA Appraiser follows a particular checklist of safety items to determine if they fit the standards of an FHA Loan.
Here are the Top 6 Checklist Items an FHA Loan Appraiser will review:
(visit the HUD website to find out more about the FHA Loan Process & Requirements)
1. Peeling paint (inside or out)
2. No broken or torn screens
3. Windows fully operate with ease & locks properly
4. Handrail present for all stairs
5. GFCI outlets above counters (grounded with a trip mechanism in the outlet)
6. Trip hazards (sidewalks, driveways, & the height of stairs)
The Appraiser will then provide the inspection list to the loan provider, stating that the items covered should be addressed before the loan is issued. The lender provides a final list of items needing to be addressed before the loan is processed.
At some point in the transaction, the buyer’s FHA lender will require the buyer & seller to sign an amendment (FHA Amendatory Clause) stating that “The FHA reserves the right to not fund this loan if the property does not appraise for the purchase price value”. This only relates to the value of the property determined by the appraiser in comparison to the purchase price & automatically gives the buyer a contingency to walk away.
The majority of Conventional Appraisers will not require improvements before closing as long as the purchase price is comparable to similar properties in the area (comps). Conventional buyers will have the opportunity to review the home with an inspector & re-negotiate with the seller with a contingency.
Benefits of an FHA Loan
As the seller, you ultimately get to decide which offer you think is best. Although an FHA Loan has a more stringent process that the borrower needs to comply with, an FHA buyer may be willing to offer slightly more than a conventional buyer. The slightly higher risk comes from the FHA Appraiser potentially finding issues and is dependent on the cost & turnaround of those repairs/fixes. The biggest benefit of an FHA Buyer is that they have more price flexibility due to having a lower required down payment.
It's important to note that a buyer can be disqualified from their loan if they make a significant change to their cash position or debt to income ratio (such as adding another loan) before closing. With an FHA Loan, the borrower’s intent is to put down as little as possible & making a significant change will impact their month-to-month cash flow and could disqualify them from getting the loan.
Questions about an Offer?
The current market conditions are bright for sellers, often they are seeing multiple offers on their homes. With multiple financing options available, the seller really can choose the best offers based on the terms and the value currently. With FHA Loans, the appraisal process follows a standardized checklist instead of solely checking the competitive listings in the area. FHA Loans do have a slightly higher risk of closing but could ultimately lead to a higher offer for the seller’s home. If you have any questions about selling your home & how to navigate the different types of offers, give us a call today or drop a comment below!
FHA Loan Sources for Sellers:
Zillow.com: What is an FHA Loan?
HomeLight: What Sellers Need To Know About FHA Loans
We are happy to answer your questions, you can contact us at any time! If we are unable to respond right away, we will contact you as soon as possible.
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