Are FHA loan offers still competitive in this market?

Question

I’ve been reading as much as I can on BP and one thing that is highly recommended is the use of an FHA loan to purchase a multi unit property to house hack. When I bought my first home I opted to use the VA loan since I thought that it would be the best choice for me and my family. I wasn’t particularly well informed then but at the time, it seemed like it was the better choice. From what I hear, lots of sellers do not accept FHA loans so this makes me wonder how people are making this work in a market that’s hot and full of cash and conventional loan buyers. I’d like to learn a bit more about using the FHA loan to purchase a multi unit property because all I’m hearing is that government loan offers are put aside. Can y’all give me some advice on what is perhaps the best way to use this loan product in a market that is reluctant to work with FHA loans? Would I be able to use this loan in the same city as my current primary residence (Austin)? My wife are willing to explore other areas that prove worthy of investing if we can in fact use this type of loan for this purchase. So relocating in or out of state is not a problem. At this time I have no intention of selling my current home since this my safety net for my family.

Bryan Noth · Answer

@Michael A. a loan officer will have the best answer but I believe you may run into an issue getting two simultaneous federal loan products (VA and FHA) for a primary residence in the same area.

FHA is powerful tool for the multifamily route because it allows a significantly lower down payment.  However, there are FHA loan limits and if you are looking in Austin that can restrict your options, especially in the duplex arena. Also worth considering the MIP and PMI when running your numbers.

As for the competitiveness of the FHA offer (In Texas, and specifically Austin) there are some weaker points:

• You cannot put any kind of an appraisal waiver, which means over asking or even asking price offers grant low confidence
• The federal loan products have stricter property condition requirements
• Conventional usually means they have more cash to bring and sellers may find that more reassuring

These are not deal killers, but it is certainly a disadvantage.

Joshua Janus · Answer

I think that was a great idea to use your VA loan! When structuring your offer with an FHA loan, include as little contingencies as possible, include a higher price and maybe wave the inspection. There are multiple ways to create an offer that is more appealing.

Wale Lawal · Answer

FHA 3.5% is very difficult to get accepted contract in this highly competitive Red HOT Real Estate Market across the major metros in the country.

I will suggest you get a 5% Conventional Financing. It will give you some leg up.

As an Investor-Agent in the Houston, Texas market, most of the sellers are not accepting FHA Financing Offer.

I see this happening all the time.

Goodluck

Michael A. · Answer

Thanks!

Rick Albert · Answer

It is competitive with the right strategy. Because you are generally getting better terms with an FHA versus an investor loan, you can offer more on multifamily, giving you a competitive advantage. Also depending on the market if there are tenants with low rents, you still have the upper hand and can be more competitive against traditional investors.

Ryan Kelly · Answer

@Michael A. here's move info on the Homeward "Buy With Cash" program: https://www.homeward.com/buy-w...

Ryan Kelly · Answer

@Michael A. you don't need cash to make a cash offer using Homeward. The way the program works is you get pre-approved with Homeward who will ultimately be your lender. You make a cash offer on a property and Homeward buys it. Separately, you have a contract with Homeward to purchase it back from them using financing and close. They will simply charge you a daily lease rate for the home until you close the purchase from them. It's not as complicated as it sounds. Hope that makes sense. You can do an FHA loan using Homeward, or conventional, your choice.

Michael A. · Answer

hi Ryan, unfortunately I do not have the cash on hand for such a large purchase at the moment so I am limited to financing only

Ryan Kelly · Answer

@Michael A. technically, FHA loans are never "competitive" against other loan products or cash. Their purpose is to benefit the buyer who can purchase a property with little money down and give the buyer protection with added contingencies required by the FHA (same for VA). Have you considered using a cash-purchase option like Homeward to buy the home and then using FHA financing when you purchase from Homeward? If you aren't familiar with Homeward or similar cash-purchase options, happy to educate you.

Michael A. · Answer

Is this something that FHA allows? have you had any success with this loan product as of late?

Are FHA loan offers still competitive in this market?

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