Should You Ignore FHA Homebuyers?
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The Grand Rapids real estate market has the third-lowest housing inventory in the United States, which definitely makes our market more challenging. Today, I’ll go over FHA loans and how buyers and sellers can use them to navigate this difficult market.
An FHA loan is a loan that is insured by the Federal Housing Administration. This loan program started several years ago in an effort to help first-time homebuyers by offering them a low down payment program. Most first-time homebuyers will use an FHA loan to achieve their mortgage needs and only put 3% to 3.5% down.
As a seller, you have a couple of different options when it comes to accepting an offer. You can work with an FHA buyer or a buyer with conventional financing. Buyers with conventional financing have more of a down payment and are usually a second or third-time homebuyer; they are able to pull equity out of their home or have more savings for a down payment.
The FHA loan is a little more strict when it comes to things that the seller has to take care of, but that doesn’t mean you should be afraid of accepting an FHA loan. Before 2005, sellers were very reluctant to accept FHA offers because the FHA required far too many repairs. Since then, those guidelines have relaxed.
If you are selling your home, you should also know that 40% to 50% of the offers in our current market are from FHA buyers. If you eliminate FHA buyers from your buyer pool, then you will eliminate plenty of potential offers on your home, which is not a good idea.
If you are thinking of putting your home on the market, you will need to make these repairs before closing if you accept an FHA offer:
- Peeling paint in homes built prior to 1978.
- Unpainted downspouts and broken rain gutters.
- Rotting outbuilding in need of demolition.
- Exterior doors that do not properly close and open.
- Exposed wiring and uncovered junction boxes.
- Major plumbing issues and leaks.
- Inoperable HVAC systems.
- Leaky or defective roofs, roofs with a life expectancy of less than three years, and composition over shake.
- Active and visible pest infestation.
- Rotting window sills, eaves, and support columns on a porch.
- Missing appliances that are usually sold with a home, such as a stove.
- Bedrooms without minimum-sized windows or bedroom windows with bars that do not release.
- Foundational or structural defects.
- Wet basements.
- Evidence of standing water in the crawl space.
- Inoperable kitchen appliances.
- Empty swimming pools, pools without a working pump, and pools with mosquito fish.
- Ripped screens.
- No pressure relief valve on water heater.
- Leaning or broken fence.
If you are thinking of listing your home and you’re wondering what FHA requirements are, that’s pretty much it. Talk to your agent about that list because it may change year to year. Regardless, it’s important to understand that these are items that will be looked at closely.
So, what’s the best thing you can do before you list your home? I recommend getting a pre-inspection and taking care of the items on that list in advance in order to open your home up to more offers.
If you have any questions about FHA loans on the buyer or seller side, just give me a call or send me an email. I would be happy to help you!