Another realty question-FHA procedures/property values

Factual Questions
1

Okay guys. Here’s the scenario: I’ve found a house I really like. I’ve got a local realtor acting as a buyer’s agent for me (there were no dedicated buyer’s agents around here). She seems to think this house will go over like Hitler in Tel Aviv with the FHA inspector. So, here’s my questions:

  1. If the process has been explained to me correctly, if I want this house, it’s going to go down like this. I make an offer, and attach an earnest check. If the offer is accepted, the realtor draws up some paperwork and submits it to the bank. The bank then sends an FHA inspector out to the house. FHA guy nitpicks the house down to its splinters, returns a list to me, owner and bank about what he’s found wrong with the place. The majority, if not all, of the problems must be fixed before the FHA will approve a loan on this house. This sound correct?

  2. Let’s say I submit an offer of $89,000. The seller accepts, the inspection comes back, and there’s $8,500 worth of repairs/updating that needs to be done. Must the seller be responsible for bringing the house up to muster, or can we work it so he takes the difference and the bank contracts out to have the necessary work done? In other words, I pay the $89K still, but he only gets $80, 500?

  3. Do the FHA inspections take into account the neighborhood/property values as well as the house itself? I mean, if the seller is asking $94K and I offer $89K, can the FHA come back and say, “Nope. Best we’re going to do is $83K. Take it or leave it.”? And if this does happen, am I allowed to drop my offer down to match the FHA appraisal?

  4. Sellers hate FHA buyers, don’t they?

I’ve heard that buying a house is one of the most stressful things anyone ever does in their life. I always thought that had to do with the financial end of it. That part was a snap; it’s the trying to find something I like and can afford that’s killing me.

Thanks again.

2

I hate doing this, but I really would like some help if you guys can give it.

3

I hate doing this, but I really would like some help if you guys can give it.

4

It’s been quite a while since I’ve dealt with FHA loans, but I imagine the basics are the same.

  1. Pretty much true

  2. You MAY be able to get FHA to allow you to close by escrowing repair money etc. It shouldn’t be your preferred method because of the additional hassle, but I think you can do it.

  3. Value of a property is based on location. If the house doesn’t appraisal out, your contract should and would generally provide for you to be able to walk away. You could pay the difference in cash of course.

  4. Generally sellers(and buyers for that matter) will dislike FHA loan process. Unless there is a compelling reason to do otherwise, the fewer people involved in the purchase/loan process the better. However, in some locations, if it weren’t for the FHA, there would be little or no market.

5

I just bought a home a few months go. It was the single most stressful thing I’ve ever been through. Ever. Every time I thought I knew what was going on, there was another catch just waiting for me, inclluding a surprise, day-before-closing required inspection. I honestly didn’t know if I was going to get the house until I walked out with the keys.

That said,

  1. yes you got it, that’s the easy part

2)When you draw up a contract (with your earnest money, etc) and present it to a seller, there are often clauses you put in to guarantee that a certain amount of work will go into the house before you close. The seller typically counter-offers, if they accept it at all. Then you get your own paid inspector (this is not the FHA guy) to come out and look and tell you if there are any other potential problems. These are often your responsibility to fix prior to closing, unless you can work out an escrow sitution with the seller under the FHA agreement.

  1. the neighborhood determines value as much as anything else. and with FHA, they do not usually allow you to pay cash out of pocket to cover the difference. In my case, I looked at one house that needed a lot of work. the seller had a really low price. And we ewre totlly prepared to do the work ourselves in the 30 days til closing, but the seller decided at the last minute he’d rather not deal with FHA requirements.

4)that brings me to 4… sellers dislike FHA, but so do buyers. My real estate agent told me it was cause the requirements are so stringent that nothing is a sure sell. I can agreee. I finally ended up with 100% financing and a more conventional loan just so I could buy a house that could fit a family of four. Every time I tried with the FHA thing, there were more and more hoops to jump through. and the financing I got was no walk thru the park wither (reference beginning of post). FHA is great if you find a house trhat needs no work and you have savings amounting to the down payment and you have really good credit… but if not, I’d try another avenue.

6

Here’s my experience using the VA system on the purchase of my now for-sale house, which is similar in function to the FHA system. I imagine that my next house purchase will be similar.

(1) Found the house I wanted and made the offer with earnest money contingent upon inspection, financing (pre-approved [not just qualified]), appraisal, and inspection (my own and the VA’s). Oh, and the seller was going to pay closing fees (which gave me a nice check at closing).
(2) I want to say that the VA appraiser and inspector were the same person – I don’t really remember. The VA inspector mandated that some wiring in the garage be taken care of. We let the seller know, but it never got fixed (it was no big deal) – I don’t think a reinspection was ever done, and I was going to rewire myself anyway (well, not rewire myself, but do the rewiring myself :)).
(3) The appraiser (who I thing was also the inspector) came in about $3,000 low. My agent sent him/her some comps and asked the appraiser to reconsider.
(4) Meanwhile, the seller accepted the reduced appraisal (and still would pay the closing costs!).
(5) The appraiser decided the property really was worth more. But it didn’t matter now (see step 4).
(6) We closed.

Oh, at some point I hired my own, independant inspector to ensure that there were no major problems with the house. This was about $100 – a very good investment.

Also, in my price range at the time I limited myself to looking at houses listed in the MLS that were VA/FHA terms, meaning the seller agreed in advance that it’d be okay. My agent assures me that in our new price range, we can ignore whether the seller lists VA/FHA on the MLS; if the seller is insistent that he won’t do VA terms once he sees the earnest money and the offer, then it’s just too bad for the seller and there are a lot of houses out there.

I, for one, have my house listed as VA/FHA – it won’t be any type of hassle for me as a seller because the house is perfect (and I’m not talking rose-colored glasses perfect; it really is perfect). I’ll take anyone’s money. Maybe, though, if you get caught in a bidding war then the non-VA/FHA buyer has the advantage. On the other hand, if the house has been on the market three months…

If you can do VA/FHA without a down payment of any type, do it! Interest rates are soooo low you’re wasting money putting money down if you can avoid it. Uh, though, with VA there’s no PMI – is there PMI on FHA? I don’t know, that could change things. Also, if you’re a bad money saver, then maybe a big down payment’s a good idea for you after all.

7

$3,000? Your appraiser was a nitwit. Unless the home was less than around $25,000 in value, I don’t know a single MAI that would quibble over $3,000. We’re just not that good.

The fact that the agent sent him comparable sales that changed his mind is even worse. There ain’t a single sale out there that I don’t know about that would change my mind, the whole reason I’m paid the big bucks is to keep track of these things and do the research. Lots of guys have sent me comps to convince me their 40 year old restaurant was worth $350/SF, but in each case not only did I already know about 'em, but they only further proved my point… “whataya mean my vacant 50 year old Sinclair station isn’t comparable to a brand new QuikTrip leased at $50/SF?”

$3,000? I’d have to have a damn good reason to split hairs like that, like $3,000 worth of delinquent property taxes.

8

desdinova, what you describe may very well be what happened behind the scenes, so to speak. To me $3,000 didn’t seem to be all that much to worry about, and it seems like comps would have been all over the place on both sides. So I don’t facutally know that it was the comps that changed the appraiser’s mind, but that’ what I was led to believe by my buyers’ agent at the time. Or I was so overwhelmed by it all that I saw it the way I described it rather than the way it really was.

9

Some general FYI

How to buy a HUD home

10

It used to be, and perhaps still the case, the appraisal rules required the sales price to be given to the appraiser BEFORE the appraisal value was determined.

This requirement always struck me on the lending side the exact opposite of what it should have been.

11

Before I go any further, I should make it clear that I’m a commerical appraiser with no experience in appraising properties for FHA loans. I’ll occassionally appraise single family homes, but it’s usually a whole lot of them at once for purposes other than owner-occupancy (right-of-way work, for example).

That being said, there isn’t any USPAP requirement for the client to tell the appraiser what the contract price is, nor has there ever been one to the best of my knowledge. It may be a requirement of FHA, or maybe your particular institution required it, but there’s nothing I’m aware of that allows me to force a lender to tell me what the contract price is, or how much the loan is for. I’ll politely ask, so as to prevent exactly the situation Balthisar was in, but if the lender says no then I’ll put together my best estimate of market value and call it a day.

You are quite correct, furnishing the appraiser with the contract price is really contrary to the spirit of the appraisal process. And to the best of my knowledge, lenders have no obligation to tell the appraiser anything about it by terms of the FIRREA or USPAP.