My wife Heejin was “on call” for weekend referrals yesterday, and she had two buyers who wanted to switch from FHA financing to 5% down conventional financing.
The buyers were making offers over list price in very competitive markets, and they were convinced their offers would be stronger with conventional financing.
And Heejin screamed,“NOOOOOO, DON’T DO IT!!”
OK – she actually calmly advised the buyers that FHA was a far better option, and this is why.
Appraisal Shortfalls: Both buyers are tight on cash and making offers over asking price. This makes it impossible for them to waive the appraisal contingency b/c there is a possibility that the appraisal will come in low due to a lack of supporting comparable sales. The buyers can, however, offer to make up appraisal shortfalls up to a certain dollar amount, as available cash permits. And FHA’s smaller down payment frees up additional cash to cover appraisal shortfalls.
Lender Credits: FHA rates are low and the “yield premiums” or “rebates” that lenders receive are large. B/c of this, lenders are more easily able to offer large lender credits to cover closing costs, freeing up even more cash to cover appraisal shortfalls.
Speed: FHA loans do NOT take longer to close. Any lender worth its salt can close FHA loans as fast as conventional loans. In our case, we need only 14 calendar days to close a FHA transaction.
Condition: It is a huge myth that FHA financed properties need to be in better condition than conventionally financed properties. The condition requirements are largely the same for FHA and conventional. FHA does NOT require a clear Section I Termite Report. FHA appraisers are more likely to call out peeling paint, but that is about the only difference – and that is only an issue with older homes.
Low Rates: FHA interest rates are lower than conventional rates.
We Call Listing Agents! Every team member at JVM is trained in the art of calling listing agents. We love to do it in fact so we can tout the strength of our pre-approvals, share all of the above information, and help our clients get into contract. We like to make sure every listing agent thinks: “Wow! FHA really is better!” 😊
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167