All Forum Posts by: Michele Granata

If a "over asking price, cash, no contingency offer" is a 10/10 offer, then an FHA loan is definitely weaker. Seller's prioritize who is MOST likely to close and how close to a sure thing the offer is.

FHA loans are "weaker" because the appraisal is slightly more stringent and with the high loan balance, any change in interest rates can more dramatically impact an FHA buyer's qualification.

That being said - today's market is generally more buyer friendly. If the seller doesn't have dozens and dozens of offers, your FHA offer won't be buried under so many stronger offers. Your agent needs to do their best to position you as THE buyer the seller should be working with. They need to make your financial stability seem extremely strong while making it very clear that you're motivated for their property. Obviously they shouldn't do this in excess and give away a bunch of contingencies or negotiation power - there's a balance the best agents are able to find.

The issue is, with FHA there are more stringent guidelines, longer closes, and it's not cash. Dollar for dollar, a cash offer will always beat a financed offer. I don't think that means you shouldn't use FHA.. It's a great product and has tons of benefits. It may just take a bit longer. If you're having a lot of trouble finding a deal, try cold calling. You could find an off market deal with no competition.

Hi, well technically speaking it is a weaker offer. That being said, right now the market is shifting more towards buyers so sellers are going to be more flexible in price, terms, etc. But say for example, you and another buyer are close to equal on price and theirs is a conventional (20% down) and yours is FHA, they'll probably lean towards that buyer. If sellers are getting cash offers, those will always win all other things being equal.

Anyhow, this is not something you can control so be aggressive out and make offers on properties that will fit your needs and financial goals. You will find the right property for you. And yes, it is tough getting that first one under your belt but don't give up on yourself or your dreams. If it were easy, everyone would have a nice big RE portfolio. Just be patient and dedicated to finding the right place.

Hi Michelle.

As a lender, i will tell you that in terms of out of pocket expenses and cashflow the FHA loan is better.

Rate will be lower without points, less money down for multi unit(3.5% vs 15-25%) and you can get up to 6% of the purchase price as a seller concession.

In terms of making your offer better, you can opt to use some of the cash you are saving to cover the seller's closing costs or pay some sort of appraisal gap. 

This shouldnt be necessary since each loan program is equally likely to pay out. However realtors have a bias against FHA which leads sellers to have a bias. Primarily, this comes from the required inspection and higher possibility of a remedy (seller fixing items) being needed during the appraisal.

I would 100% suggest shooting for what will make you the most financially sound

I am currently dealing with a lot of points in your post! FHA was "weaker" so to speak for a while when the market was at it's hottest. It has a more stringent appraisal which would cause the sellers to often go with a conventional if all other points are the same. Now that the market has slowed FHA's are becoming far more frequent. In Colorado we are able to check separate boxes on our offer for loans, my current buyers are in the same situation as you are. I checked FHA or Conventional on the loans section so the seller has to accept either when signing the contract.

List agents understand you are going to go with the loan that is best suited for you and keeps the most in your pocket. Unless the property needs a huge Renovation, you should be all good to go with FHA. Good luck and let us know what you end up doing!

@Ryan Thomson

that's why i think this makes no sense.  the goal of RE investing is to own RE.  gifting funds for someone else to house hack, and then they pay you back...  doesn't get you any ownership.

@Michele Granata

@Michele Granata I'm curious though, why can't you move in and be the owner occupant yourself? That would be an amazing way for you to do this on your own.

I think one possible outcome is if the partner that is bringing the financing is being rewarded with equity. Let’s say they are a non-occupant co-signer that is bringing the lendable financing portion of the deal. Maybe you have an agreement that in 5 years they will net 100% of equity when you go to refinance the mortgage into 100% your name. It’s more speculative but that’s one thing to consider. Another is that in 2 years you move out and now you co-own this cashflowing property and you treat it as such. The first two years are spent rehabbing and one partner owner occupies so you both can get into the deal with a low down payment: one person is lendable, one person has the down payment and has the ability to occupy. I’d hire an attorney to draft this up. Even if this thread gets hundreds of success stories, you’re still better off with legal counsel. A legally drafted operating agreement is absolutely necessary.

Hope that helps!

@Michele Granata

I know this isn't the answer you want... but I don't think a house hacking partnership makes any sense for either party.

There isn't enough 'reward' in such a deal for two or more people.  The whole point is for the occupant to reduce their living expenses.  Say you funded the occupant's purchase... they're getting all the benefits.  What would you get?  If you want a return on your funds, just open a savings account.