Frustrations Fly Over FHA Loan Hangups

At the Real Property Valuation Forum during the 2016 REALTORS® Legislative Meetings & Trade Expo Tuesday afternoon, real estate professionals, appraisers, and underwriters all aired grievances about the difficulty and confusing language of the FHA loan process, in particular the new FHA single family handbook and its effect on appraisals.

John Anderson ABR, CRB, and broker-owner of Twin Oaks Realty Inc. in Minneapolis, Minn. says he’s seen a huge reluctance on the part of sellers to accept offers that will be financed by loans insured by FHA. “Sellers are looking the other way and saying ‘I don’t really want to deal with FHA,’” he said. Still, he said that some 25-30 percent of his deals are FHA-insured and noted that sometimes it’s more of a word-of-mouth reluctance than actual experience of collapsed deals. “Often it’s because of misconceptions… sellers are saying ‘I hear there’s problems with FHA appraisers.’”

As a housing programs policy specialist with FHA, Gary Eisenbraun did his best to explain the limits of the FHA’s power to change the process, noting that appraisers don’t decide where the home should be valued. “The appraiser has a responsibility to tell the story. It’s the underwriter that clears the property,” he said. Anderson and Eisenbraun were a part of a panel of experts who took questions from the audience over a range of issues affecting appraisals and home sales.

While some noted that recent changes to the FHA's handbook on appraisals seemed to imply that appraisers’ work is more akin to that of the home inspection community, Eisenbraun disputed that, noting that appraisers and lenders can always order a more experienced or capable inspector to do follow-up work that will help the lender determine proper value. “HUD would never expect anyone to put themselves in a dangerous situation,” he said. “We don’t expect the appraiser to be a chemist.”

Another point of contention was the practice of appraisers asking to see outside home inspection reports. “The home inspection should never be given to the appraiser,” Eisenbraun said. “That’s giving someone something they really don’t need in order to determine value and acceptability of the property to HUD.”

Perhaps the greatest number of individual questions from the audience centered around the working order of appliances. The way Eisenbraun laid it out, FHA doesn’t technically require any appliances to be present or in working order; just that occupants have areas in which they can sleep, eat, prepare food, and bathe. “We are not saying you have to have kitchen appliances unless they are conveyed in the context of real estate,” he said. “But if it’s customary in your local market then it may be considered real estate.”

Several questions from the audience were about issues that arose in connection with appliances that aren’t in tip-top shape. Eisenbraun said the basic functionality of an appliance should be the litmus test. If the fridge can keep the milk cold, it’s working. If the ice maker doesn’t appear to be making ice, “maybe that has a defect on the overall contributory value” but it’s not really a deal-breaker for the appraisal.

There were calls from the audience and panel participants to increase training, but Eisenbraun said there was only so much the federal government could do at the local level, and appealed to real estate professionals and lenders to stay involved in the appraisal process and to demand a high level of performance from appraisers.

Anderson added that sales associates and brokers have a responsibility to consider future appraisals when they work with sellers to determine the price of a home. “We have to build our cases when we list our properties, just like appraisers have to, [otherwise] we’re not doing our fiduciary duty,” he said, telling attendees to consider the work of the appraiser throughout the listing process. “Sometimes we think, ‘We just sell them and you make it fit,’ but it doesn’t really work that way.”

Source: RealtorMag Online, Meg White
http://realtormag.realtor.org/daily-news/2016/05/11/frustrations-fly-over-fha-loan-hangups?om_rid=AAFmZk&om_mid=_BXM6DaB9Ni0xND&om_ntype=RMODaily

Does an FHA Loan Limit Your Home-Buying Options?

In many housing markets, there is more demand than supply, which can create intense competition. Let’s say you’re pre-approved for an FHA loan and find a home you like, but your competition comes to the table with cash—here’s what you need to know.

Stigma tied to FHA loans

FHA loans unfortunately have a stigma that they are problematic and harder to obtain, due to their credit standards and property conditions for appraisals.

If we rewind the clock a few years, many listings on the market were short sales, foreclosures, and distressed properties. Buyers working with FHA loans typically had problems, because the FHA is very particular about a property being acceptable to meet health and safety concerns. However, in general, the types of properties on the market today are far different from the homes on the market just a few years ago. In other words, today’s listings tend more to have equity and meet appraisal standards.

Still, there’s a misconception that buyers working with FHA loans are not as strong on paper, due to having only 3.5% down, and the possible likelihood of buyers falling out of escrow because they cannot qualify. This can be taken care of upfront by making sure you are properly pre-approved with the loan application, credit report and giving the lender with whom you’re working full authority to review your financials to make sure you are bulletproof.

Furthermore, a good loan officer will call the listing agent (with your buyer’s agent’s permission) to let him or her know how qualified you are and ease any concerns about your qualifying integrity.

But let’s have a look at the competition you may face, and how to improve your odds. Many of these scenarios can also apply even if you have a conventional loan, so keep reading.

All-cash offers

No matter what, there’s a chance you will lose out on a particular home you’d like to purchase, because of someone making an all-cash offer that is more attractive than yours. This type of offer is considered the cream of the crop, as there’s no financing contingency and usually no appraisal contingency, which mean a quick, easy close for the seller.

However, an all-cash buyer may also try to make a lowball offer. If your real estate agent tells you there’s interest from an all-cash buyer, don’t let that be a deterrent. I’ve seen many situations where all-cash buyers are looking to get a deal. Just remember that all-cash buyers do not necessarily get preferential treatment, especially if they’re making a lower-priced offer on a home for which the seller’s motivation is to get the highest and best offer.

Loans with big down payments

Generally, a buyer with a conventional loan with 20% down looks stronger on paper than a buyer with less than 20% down. This usually means the buyer might be able to perform more easily, which can be appealing to a seller. While this might not always be the case, the general consensus among real estate professionals is that a loan with a bigger down payment is better. If you are working with less skin in the game, a higher offer from you—if it’s within your budget—may offset an offer from a buyer who has more money down.

Big bank accounts

If you can produce a bank statement showing you have additional funds in the bank, this can go a long way when negotiating a real estate deal independent of your down payment. A large cash balance in the bank is appealing to a seller, even if you’re taking out financing to buy a home. Perhaps it’s more advantageous for you to take out financing considering the tax benefits than it is for you to pay all cash for a home. There can be many reasons for your using financing to buy a home rather than cash. Even if you do not plan to use all cash, showing proof of funds to close makes a strong statement to a seller you are serious.

Seller motivation

When sellers list their home they consider the following:

• Price
• Speed
• Flexibility

If you can match the seller’s expectations on all three of these, or even two out of the three, you increase your chances of getting your offer accepted. While price is important, speed may be more important, for example, if the seller is closing on a replacement property of his own, has a separate escrow, and is limited by a contractual timeline. Ultimately, cash and price go hand in hand. A reputable buyer’s agent and loan officer working in tandem can help convey your strength as a buyer to the listing agent and ultimately to the seller, to help get you in contract sooner rather than later.

Having good credit can also help position you as a strong buyer. If your credit isn’t all that strong, it doesn’t necessarily keep you from qualifying for a loan, but it can get you access to better interest rates, which can give you more buying power. If your timeline allows it, building your credit before you buy a home can be beneficial. If you’re just starting out, you can get an idea of where you stand by getting your credit reports and scores. You can get your free annual credit reports on AnnualCreditReport.com, and several resources offer free credit scores, including Credit.com.

Source: Realtor.com via Credit.com
http://www.realtor.com/advice/finance/does-an-fha-loan-limit-your-home-buying-options/

Want an FHA Loan? It’s About to Get More Difficult

If you’re looking to buy a home with a Federal Housing Administration loan, you can expect to face some new hurdles starting next week.

A few changes are coming on Sept. 14—and some of them have the potential to be a deal breaker for buyers, at least in the short term.

“I anticipate borrowers as a whole having a more difficult time qualifying for an FHA loan,” says Matt Hackett, operations and underwriting manager for Equity Now, a direct mortgage lender in New York City.

Why it’s happening

The backstory: FHA loans are backed by the federal government. Since they require very low down payments—starting at 3.5%—and have lenient credit requirements, these loans are often used by home buyers who wouldn’t otherwise be able to qualify for, or afford, a standard mortgage.

But now, the FHA wants to tighten up some loan requirements to favor backing mortgages for those with stronger fiscal records.

“We’re trying to promote access to mortgage finance—not to restrict it—but to do so in a responsible manner,” says Brian Sullivan, supervisory public affairs specialist with the U.S. Department of Housing and Urban Development.

Deferred student loan debt no longer ignored

Previously, student debt deferred at least 12 months beyond closing would not affect your debt-to-income ratio. But that’s no longer the case.

“We’re treating it as debt because it’s debt nonetheless,” Sullivan says.

So what does this mean for home buyers still paying off their education? And what should they do about it? According to our experts: Reach out to a mortgage broker or HUD counselor ASAP.

“Take the time to meet with an experienced loan officer who will be able to put together the best buying ‘game plan’ for you,” says Dave Fry, a Realtor in St. Paul, MN.

The new rule might deter some potential home buyers. But even if it removes them from the market in the short term, it might be for their own good, Fry says.

“It will ultimately protect them from trouble later,” Fry says.

Employment gaps face more scrutiny

If you haven’t been employed for six months or longer (known euphemistically as an extended absence), start working again as soon as you can. Under the new rules, borrowers will need six months on the job after an extended absence, regardless of the reason for the absence (even raising kids, which previously was deemed an “acceptable employment situation“).

Other notable changes

Some potential headaches include the following:

• More documentation for gift funds: Previously, gift funds were documented with a letter that included basic details such as the donor’s name, dollar amount, dates transferred, and deposit and withdrawal slips. Under the new rules, lenders will need to see a bank statement from the donor.
• More documentation for job changes: If you’ve changed jobs more than three times in a year, or switched careers once in the past year, you’ll need more documentation—including training and education transcripts, and evidence of continual increases in income and/or benefits.

The bottom line

So are these changes good or bad?

The changes are “generally more credit-restrictive, which reduces access to credit,” Hackett says. “In that sense, they are not beneficial to potential home buyers.”

Fry has a more positive outlook.

“I don’t think any of these new rules are bad,” Fry says. “Talk to both your Realtor and your loan officer—they are there to help you make the best decisions.”

For a more detailed look at the FHA changes, check out the new handbook.

Source: Realtor.com, Craig Donofrio
http://www.realtor.com/advice/finance/want-a-fha-loan-its-about-to-get-a-bit-more-difficult/