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Any advice for FHA First Time Buyer competing against investors?

My husband and I are looking for a home in our neighborhood (we have rented there for nearly 9 years), but our modest price range is pretty much exactly what investors with cash can pay as well ($100-150K). We've been close to getting a few homes, only to have the FHA appraisal come up short and we lose the home.

We'd really love to stay in our neighborhood since we feel like a part of the community, patronize local businesses, want to have kids here, etc. 

How can we compete with investors with cash who can pay above the appraisal value? Are we just out of luck? Is it worth waiting to get lucky on something? 
  • April 26 2012 - Tempe
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Answers (9)

All the advice already here is truly valuable, I'd add one suggestion - backup offers. This has helped a few of my buyer clients with weaker financing types win houses.

It requires patience, but be certain that whenever you lose against one of those cash investors, your agent requests the seller hold your offer as backup. The great thing about investors is, if the numbers stop making sense for them at any point, they no longer want the house. At that point, the seller could take the house back to market, or...they could call their first backup. So be the first backup!
  • April 19 2013
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I had a very good FHA buyer.  We had written several offers before seeing the property and always writing full price or more but still unsuccessful.

As soon as the next property came on market, we went to see the agent at his Open House.  We built repoire with him and asked how we should write the offer to please the Seller.  We wrote a full price offer with agreeable terms. Both sides were very accommodating and we had a successful close. 

Even though this agent had received multiple offers of  cash offers after us, he pushed for us because he knew we would be easy to work with. He was old school and we were very lucky.


  • February 22 2013
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Profile picture for Nelly Brooks
I'm from California and I can't explain how low the house inventory is right now.
Last month we made an offer 26K above the asking price (189k) but an investor made a cash offer 40k above the asking price... it's so depressing
  • February 22 2013
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Profile picture for Matt Hiatt
I work the Phoenix area that you in and it is tough for buyers. I hate to give out my secrets, but I'll help you out. Write a heart felt letter on why you want the home and present it with your offer. The more personal you can make it, the better. Does it always work, no, but you would be surprised how many times my clients got a home that they were not the highest bidder on. Also, are you fully approved or just pre-approved. The more approved your loan is, the stronger your offer. In this market, you have to be creative.
  • April 27 2012
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You might try switching to Conventional financing.  If your credit scores are high enough you can put as little as 3% down.  Make a strong offer at list or higher.  Keep making offer you will get something eventually.  Hope that helps.
  • April 26 2012
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You cannot compete against anyone going over appraised value if you don't have the cash to make up the difference.

Just be sure to make your highest and best offer from the start and don't ask the seller to pay any closing costs or other concessions such as HOA fees or home warranty.

There are other strategies being used as well on homes owned by certain sellers but they really should be discussed with your realtor. Bidding slightly higher in hopes that the seller will reduce to the appraised value comes at your own risk. Working with a buyer's specialist from the area in which you're looking is the best thing I would recommend.

In this market, "heartstrings" type letters aren't very effective but worth a shot if the seller is a normal owner.

Best of Luck
  • April 26 2012
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Profile picture for user8324856
We definitely have a great agent and he's doing as much as he can. 
Ofe, you are hearing it right. FHA won't lend us more than the appraised value of the home, so even if we are willing to pay more than investors, the bank won't lend more and we have no way of making up the gap with cash (on top of deposit and closing costs - what young couple could?)

I was thinking of asking my agent to include a "heartstrings" type letter with our next offer (at least one to a owner/seller), but I am afraid that it would sound too desperate. This sure is a weird housing market.
  • April 26 2012
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Profile picture for Ofe Polack
Find yourself a good buyer agent and follow the guidance of the agent, it is not easy when you are competing agaisnt investors who pay cash.  But what I hear you saying is a different story.  The cash buyers don't have an appraisal done, whereas you cannot offer more than the market value, because the appraisals are coming below what have offered.
  • April 26 2012
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yes. don't lowball. if you see a property you like
offer full price, and if you are aware of competing offers,
go 10% above. good luck!
  • April 26 2012
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