How to Compete with a FHA Loan

Question

My wife and I have been looking for a home in the Sacramento, CA and east bound area to house hack in and were hoping to use an FHA loan. We've put in a few offers and on the last one even raised our offer significantly to hopefully compete better for a home setup we really liked. We haven't had any luck so far as it always seems there's an all cash or conventional loan buyer.

So my question is, are there any suggestions on how to make an FHA loan look better than just offering way over reasonable price? Or is this just part of using an FHA loan and the current market and we just have to hope we get lucky one day? Thanks in advance for any tips!

PS - we've tried writing letters to the home owners and a few listing agents have told us they wont show the letters to them due to discrimination laws...

Dan Guenther · Answer

Hey @Max Moncur - Welcome to the community! Without knowing more details about your situation here are few thoughts:

1) Do you specifically need to use the FHA vs 3-5% down conventional?

2) I'm sure you are working with a great agent but how are they presenting the offer/terms? Are they connecting your lender with each offer so that said lender can also reach out to the listing agent to vouch for your qualifications and to show a strong team?

3) Are the properties you are looking at questionable as far as FHA lending guidelines go? (Any peeling paint, broken windows, overhanging tree branches, sagging roofs etc).

While FHA loans can be looked down upon on the listing side, this shouldn't be a deal breaker if you are making strong offers and the house checks out. Unfortunately, if you are up against a cash offer of the same caliber, it's going to be hard to beat that.

Kyle Spearin · Answer

@Max Moncur thanks for bringing up a topic that seems often overlooked when buying a primary residence. There's a lot of good advice above, so I'll try to be unique in my response.

I'd recommend targeting houses that have higher days on market, need some rehabbing, or are otherwise less sought after by the typical homebuyer. If the seller has 1 option vs 0, they will choose you. You may also be able to get a discount on the property with this approach!

Shaun Weekes · Answer

One of the best ways to get an offer looked at and accepted is getting a fully underwritten approval.  The mortgage bank will underwrite your C.I.A. (Credit, Income and Assets) and when this is done your realtor can reduce your loan contingency (It's already been completed and approved) which makes your offer much more solid.  All you need at this point is a home that will appraise "as is" and that has clean title.  At this point you should be able to close in 14 days or less. Seller’s agents love speed and with a buyer that is fully approved your offers will hold much more weight.

I hope this helps and have a good one.

Gordon Cuffe · Answer

@Max Moncur You can always PM to see about conventional financing options with the same amount of down payment. The problem with offering over asking price is if the home doesn't appraise you will have to bring in the extra cash to close the deal. If you have the extra cash, you might as well do conventional financing. It is true that we have fewer listings compared to last summer so that is making it tough for all  buyers again.

Aiden Ross Wilder · Answer

I'm running into the same problem with me and my girlfriend you just got to keep going it is a stressful and exciting process just keeping going you can get it done!

Eliott Elias · Answer

Keep making offers, with the way the market is you should not be getting outbid. The seller is going to get their money no matter how the financing is. Target property that has been on the market for quite some time.

Ryan Thomson · Answer

Hi @Max Moncur is there a reason you won't do a 5% down conventional loan? It's only 1.5% more than an FHA loan. That may look better to listing agents.

Also sounds like you may want to encourage your agent and lender to put in a good word for you when you submit the offer.

Most listing agents are scared of FHA for two reasons:

1. it raises questions about your ability to qualify. Maybe go through the whole process with a lender and get approved. Also ask your lender to call and put in a good word for you.

2. They are nervous that the appraisal is going to blow up the deal. FHA has a slightly higher standard for appraisals, but its really not an issue for most houses. Educate yourself on those FHA appraisal items. Educate your real estate agent. And ask your agent to present to the listing agent that the home you are offering on has none of those issues.

A quick google revealed this great site: https://www.valuepenguin.com/m...

DJ Dawson · Answer

just keep shooting your shot!! relationships are huge too your agent needs to take the lead on selling you to the listing agent and making the deal come together!! It will take some time but you will get one!!

Mohammed Rahman · Answer

Hey @Max Moncur - I'm an investor & realtor, and actually have a video on my Youtube about this, all links in my BP bio.

In terms of making your offer stand out, there's a combination of factors. You already seem to have an understanding that because of your low down payment, you'll have to "sell" your offer to the owner in another approach (e.g. you tried with a higher offer price).

There are other ways to tweak the offer to make it stand out. For example, you can play around with the inspection and closing timeline contingencies. I advise my clients to never waive an inspection contingency (in an FHA loan, most likely the bank will either require one or conduct their own) - HOWEVER, your agent could position the inspection contingency as a means for "peace of mind" and state that you won't come back to the seller for price reductions if anything pops up.

Additionally, you could also include a flexible closing timeline if you have no other home to sell in order to purchase the new house. Some sellers might like that if they have a timeline they need to stick with.

There are other ways to go about this, but the agent you use will matter a lot since a lot of it comes down to presenting the offer to the listing agent too.

P.S. Have your agent give the listing agent your loan officer's info to verify your approval, POF, credit, income, etc. to help the seller feel more secure in your offer.

Richard Goore · Answer

First thought is, hang in there! There are approximately 45% fewer listings in the greater Sacramento area year to date. That coupled with fewer people moving because of interest rates makes it very challenging right now, especially under $500,000. I am I’m sure your agent is guiding you two properties that possibly have been on the market longer, may need some work, but would still pass, FHA guidelines, etc. With this market, you can be a little more aggressive on price and still be fine. You’ll also have the contingency of the property meeting an FHA loan minimum. I was just able to get my FHA clients into a property at what I thought was a very aggressive price, but it ultimately appraised. It was on the market 60+ days and still needed a bunch of work . Again, just need to be diligent and hang in there.

How to Compete with a FHA Loan

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