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Finding the home of your dreams takes a lot of time and effort. You don’t want to risk losing out on a deal when you put in an offer. This article will discuss ways to help ensure your offer is accepted.
“My offer on a home was rejected because I will be getting an FHA loan. Is this legal? Isn’t that some kind of discrimination?”
The truth is, a seller can opt not to accept an offer with FHA or VA financing—and many do, for reasons that may seem valid, but really aren’t. It’s not illegal, but it’s not necessarily smart on the seller’s part.
If there are two nearly identical offers on a property, but one has 25% down and the other has 10% down, the one with the larger down payment will almost always prevail, even though the seller will net the same proceeds regardless of the down payment.
The (faulty) reasoning behind this is the belief that mortgages are insanely difficult to get, and that a borrower with a larger down payment is more likely to be approved and close escrow. The fact is that from a loan approval standpoint, there is no difference between the large down payment and the smaller one.
A borrower who has been pre-approved using one of the two prevalent Automated Underwriting Systems (Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Prospector) will in all likelihood get a final loan approval, provided that the data input by the loan officer was accurately presented. The function of the lender’s underwriter is typically to verify that the data input into the system (income, assets, job history, etc.) jibes with the documents in the file. There is very little human judgment in the loan decision process.
FHA and VA loans are actually easier to approve than conventional loans. Both loans have lower credit score requirements (580 compared to conventional’s 620), higher allowable debt-to-income requirements (50% for FHA compared to 45% for conventional) and plenty of room for different individual situations that could be show-stoppers for conventional loans.
Many people believe—incorrectly—that FHA and VA loans require all manner of repairs and inspections. While an appraiser doing an FHA or VA appraisal is required to add “health and safety” issues to the report, they are the same kinds of items that any buyer would want to have remedied for any type of purchase.
If the appraiser notes obvious termite infestation or other wood destroying organisms, he will note it on the appraisal report. As a matter of common sense and prudence, any buyer, regardless of financing, should get some form of home inspection report and possibly termite and roof reports as well. Even a buyer making a large down payment will typically ask for repairs or price concessions where defects are found.
We encourage buyers to be proactive, not reactive. Once an offer has been rejected by the seller, there are far fewer ways for the buyer to salvage that particular home option.
Any buyer making an offer on a property should provide a solid preapproval letter to assure the seller that they are well qualified and have begun the loan process. A diligent listing agent (seller’s representative) will also have a conversation with the buyer’s loan officer to confirm that the buyer has actually been preapproved, not just “prequalified.” The latter is nothing more than a loan officer’s opinion that the prospective buyer probably can get financing. The former involves reviewing all the buyer’s documentation and application and getting at least an automated approval.
If you have questions about home loans or want to get the approval process started, Sammamish Mortgage can help. We are a local, family-owned company based in Bellevue, Washington. We offer many mortgage programs across the entire state, as well as the broader Pacific Northwest region. Please contact us if you have mortgage-related questions.
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