It’s tough to get short sales closed these days. Not only is it difficult to obtain short sale approval, but it is also challenging to close a deal where the buyer is obtaining a loan. One of the biggest challenges comes in the form of the FHA loan. We caught up with Brad Yzermans, the Home Loan Artist, in order to learn more about some of the biggest challenges of FHA loans.
Here’s what Brad had to say:
Do you have any updates for us on FHA loans?
Yes, there are some new criteria impacting FHA loans. FHA, in the past, has never required collections to be paid. But, FHA has just come out with a guideline that if the amount owed in collections is above $1000, the collection must be paid in full or the borrower must be entered into a repayment agreement. Additionally, if the borrower has entered into a repayment agreement, you would need three months history of repayment in order to qualify for a loan.
How is this impacting your business?
I have a few borrowers right now that have collections totaling over $1000. They have to enter into repayment agreements, so it is going to be 3-4 months before they can start making offers again.
How does this new guideline impact buyers of short sales?
The good thing for FHA buyers of short sales is that if they have to enter into a repayment agreement, they will have time before the short sale is approved. However, the buyer’s lender needs to be aware of this new guideline so that they are not inadvertently approve folks that may not really be qualified for purchase.
Can you talk about closing cost credits and FHA? Sometimes short sale lenders don’t approve closing costs.
If the short sale lender does not approve a closing cost credit and the buyer needs the money, the buyer could receive a gift from a family member or their lender has the ability to give a lender credit (if the buyer accepts a higher interest rate). For example, I was just able to close a deal where they buyers got a 2% lender credit and their loan was made at 4%. Also, there are other loan programs (such as local and state government programs) available that can lend money for closing costs.
Any final thoughts?
The key is to make sure that the property is going to qualify for an FHA loan, subject to what the appraiser mentions in the appraisal report. Minor or major repairs may be required in order for a property to qualify for an FHA loan.
With the increase in FHA mortgage insurance rates, buyers may want to take a hard look at conventional loan programs that allow for a down payment of as little as 3%. In many cases, private mortgage insurance is less costly than FHA.
With short sales being so tough to close, it is a good idea to always keep in mind the buyer’s loan and how that loan may impact the ability to close the transaction. Thanks so much to Brad for the update!