The buyers of my FSBO home want to switch from a conventional to a FHA loan?

Question

I'm worried they may be doing this to re-nagotate the purchase price based on them wanting to raise the loan amount 6,000 in order to get cash back at closing. I know there are stricter quidelines for FHA loans and am concerned my house will not appraise for the new purchase price. I'm I just being perinoid or is this a legit concern?

Answer 1

Sounds to me like they are playing games with the mortgage industry.

If I were in your shoes I would be leery also.

The biggest drawback of FHA is that your home may not pass their inspection and you could be forced into making improvements that you do not want to pay for.

How desperate are you to sell? I would definitely question the inflated sales price (btw, you do realize this will effect the amount of transfer tax you pay, title insurance, etc. etc.). If the purchase agreement states conventional mortgage and that is not what they are getting they are in breach and you should be able to terminate the contract.

As always, go see a lawyer to make sure of your legal obligations and rights.

Answer 2

FHA loans are indeed a little stricter on their guidelines. As for your concern with the appraisal not coming out high enough, it really depends on the market you are in. I am in Chicago, so for the appraiser to give $6,000 more is usually not a problem. But, in a smaller town, that could be an issue. If the sellers want a good deal, have them look at a program called My Community Mortgage. It is a product that is competing with FHA loans and requires no down payment.

If I were in your shoes, I would not allow them to switch to FHA. The appraiser will usually find a defect with your house that you have to fix, or bring down the purchase price so that the buyer can fix it after close. FHA loans usually take an extra two weeks to close, too. If you have any questions, feel free to email me: [e-mail].

Answer 3

FHA won't allow cash back at closing. If they're wanting to raise the price, so you can contribute to their closing costs, that might be OK.

However, the FHA appraiser will be more picky as to condition of the property than would a conventional appraiser. Also, there are particular closing expenses that are normally the buyer's, that FHA does not allow the buyer to pay (it's never been carved in stone that the seller must pay them, but that's usually expected). If you don't agree in the contract to cover these as well, you might get to closing and there be a fight as to who will pay these. In Texas, these expenses would be included in the contract.

If you are worried about the appraisal, you might tell them to do the appraisal first, and if it comes out OK, you'll allow the switch from conventional to FHA. If you have a signed contract, you are under no obligation to switch this.

Answer 4

Be sure the contract says what you want it to say. FHA requires the seller to pay some things that aren't normally seller paid. Be sure that the deposit is not refundable as long as it appraises for the original price or more. Be sure the deposit covers your expenses to hold it for two more months.

Above all, keep looking for another buyer. You can accept a second offer that is subject to the first.

Answer 5

You need to contact the real estate company, they do reappraise and get a cheaper cost and also on FHA loans they can opt for the seller to pay the closing cost, we have an FHA loan approved right now and cant find nothing to our standards, just contact someone.

Answer 6

FHA appraisals have more strict guidelines than an "as is" conventional appraisal. If you decide to go through with these buyers and end up having an FHA appraisal here are somethings that the appraisers look at.

Asbestos
While an appraiser may recognize an asbestos-shingled roof or asbestos siding, the presence of asbestos does not automatically present a danger; it is when the material is deteriorating into fine particles and inhaled that a health risk is present. If this is no obvious sign of deterioration of the asbestos, the appraiser may not require removal. If it is determined that a risk exists, removal must be performed by a professional asbestos contractor.

Attic
Must be vented with no signs of structural problems. If knob and tube wiring is present it must be removed/replaced. Access to the attic is required!

Basement/Crawl Space
Must not show any signs of water seepage, excess moisture, or any foundation cracks. Minimum ground-to-joist clearance of 18”. Must be on concrete with concrete footings. Structure must be found with no foundation cracks. Must have access to crawlspace and have screened covered vents.

Bathrooms
Bathroom tub caulked and missing ceramic tile replaced.

Closets
Each bedroom is required to have a closet in the room. A free-standing closet is acceptable. Check with appraiser before installing a free-standing closet for acceptability.

Concrete/Brickwork
Must be level to approx. 1”. Unless it is patched/blended prior to the FHA inspection, unleveled concrete must be removed and replaced. Brickwork must not show signs of decay, particularly on porches and chimneys. Most brick, including chimneys, will need to be properly tuck-pointed where applicable.

Electrical
Must be adequate for the size of the dwelling. 60 amp service in homes under 900 sq. ft. is acceptable as long as it meets city certification where applicable. 100 amp service for homes between 1300 and 2000 sq ft. All wall and ceiling outlets must be covered. GFI or grounded outlets are required in kitchens and baths. Anything that appears obsolete must be inspected.

Flooring
All sub-flooring must be covered. Poor carpeting may have to be replaced.

Furnace
Home must have permanent heating in all rooms. Wall heaters must be inspected by licensed contractor and be properly installed and vented to exterior. Single source floor heating is not acceptable. A licensed contractor must inspect any heating element that appears obsolete. All furnace and A/C units must be ‘on’ (powered) or an inspector will need to be called in for certification.

Kitchen
Cupboards in kitchen must have doors.

Paint
Chipping, cracking or peeling paint MUST be scraped and painted. Any exposed wood (interior or exterior) around windows and trims must be painted. This includes the garage exterior surface as well.

Plumbing
No visible leakage. Hot water tank must be operational with pressure vents, release valve, and discharge pipe to floor drain.

Railings
A handrail is required on all stairways and porches with more than three steps.


Roof
Must be in good repair with a 3-5 year remaining physical life. Two layers maximum. Gutter and down spouts not necessary if overhang is approximately 18”(NO exceptions) Missing gutters/down spouts should be replaced and drain water away from foundation. Shingles and flashing must be in reasonably good condition with no visible signs of water damage.

Smoke Detectors
A functioning smoke detector must be on each level of the home, including the basement.

Termite Inspection
Required for ALL FHA loans.

Well and Septic
Must have well water tested and septic inspected. If city water or city sewer is available, FHA will require connections when the cost is not prohibitive.

Windows/Doors
Missing doors must be hung or on premises. No broken windows or broken seals. Windows must be adequately caulked.

Answer 7

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