Profile picture for mudmann

FHA Approved but all my contracts get rejected.

I am a first time home buyer. I make $42k a year have good credit and moderate debt but... I only have $4k saved for down payment. If I work my budget responsibly I should borrow no more than $85k tops. There are a lot of great deals with bank owned, foreclosures, and short-sales. Now I have signed 6 contracts already and all of them have been rejected. it seem to me that regardless of the sale price of a home the closing cost will be at minimum $9k and all these great deals go to cash investors willing to pay 100% of the closing costs.
So I feel that FHA is broken. I am the perfect candidate for FHA but I still cant use it.
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July 26 2009 - Tampa
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Answers (7)

Best Answer
Chances are that your offers were too low....are you working with a Realtor?
FHA also offers a 203k loan for repairs, but in real world..... you better off finding a house with no need for repairs as FHA have tightned their guidelines.
If you have a credit higher than 660 there's also "homepath" available, are you aware of the 8k tax credit?
9k for closing is a bit excessive...... hire a Realtor that is worth its salt, and have  strong negotation skills, if your debts don't exceed 41% of your income, I don't see much problem.
Call me if you need more information we do offer loans trough Wells-Fargo "in House"; one stop shop!
Antonio 813-785-7529
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July 28 2009
FHA is not broken. The housing market is. FHA works fine in many cases but distressed properties have too many challenges/issues to quaify for this type of financing including cash and financing with higher funding guarantees.

Like it or not, most agents have no idea whether a home will pass FHA appraisal/inspection and end up frustrating their buyer clients along the way by drafting offers anyway. They simply show a house, write and present an offer and hope it's accepted without regard to the issues. Ideally states would have laws requiring realtors be FHA approved before they are allowed to work with FHA buyers.

Now on top of all of this, foreclosures are not seen by the bank that owns them and are sold "as is" "where is:. They often rely on the listing agent who is better qualified to determine the likelihood of an FHA loan being funded based on the condition. Banks know the in's and out's of FHA and coupled with the greater likelihood they asset won't pass inspection, they will reject the offer in favor of a less risky offer.

While  a short sale could very well have the same inspection/appraisal issues it is just as likely a short sale rejection will not be due to buyer financing but seller/lender issues.

My advice is to keep saving, keep looking and don't worry about prices climbing to unaffordable anytime soon. All the hype that built up this spring in our area was slapped back to reality when local July numbers were released. Time is on your side.
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August 10 2009
If you're looking at condos, you need to know that many complexes are not eligible for FHA financing. 

Also I'm seeing some listing agents getting involved with investors in "flip scams" on pre-foreclosure short sales.  FHA will not allow a short sale where there is a middle man investor who buys the house at a lower price from the lender and then immediately sells the house to you at a profit. I believe this is fraudulently representing the value of the house to the lender and eventually the FBI is going to crack down on this unethical behavior and Realtors who are making a quick buck right now may lose their licenses and face jail time.

Also on certain pre-foreclosure sales there is a middle man "negotiator" who will attempt to extra a significant fee for doing very little.  Those Realtors also don't want to deal with FHA because they know the buyer doesn't have any extra money to "pay off" the negotiator.  Also FHA may not allow a buyer to pay a negotiator's fee.

We are getting close to the expiration date for the up to $8k rebate so you will have even more competition on buying a home in your price range.  If you see a "bank owned" property, get out to see it the same day it comes on the market and offer slightly above the asking price.  If you want your closing costs paid, add that to your offer price, too.  So on a $100k house, offer $110k if you need $9k closing costs.  Also by the way you can finance the FHA Upfront PMI so you should have such high closing costs.
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August 10 2009
Profile picture for mudmann
Antonio,  Everything you said speaks directly to me and is on point. Yes I know about 203k, yes my credit is above 660, yes I qualify for tax credit and know how to amend 08 taxes to get it early, my debt is 22% of my income.I even have an offer in right now with Wells-Fargo along with pre-approval. But after two months of hunting and 7 offers rejected so far I am not holding my breath.
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July 30 2009
Now I have signed 6 contracts already and all of them have been rejected

It looks like your offers have been rejected and they are not contracts. (A contract is a legally binding instrument.)

In my experience with short sales on the seller and buyer side some buyers who make offers on short sales who have FHA or conventional 30-year mortgages have their offer accepted. I would highly suggest that when you work with a realtor ® to ask them to find out of the seller's lender company has done an internal appraisal and if they have other offers on it. If your offer is accepted by the seller it is still contingent on the lender(s)' approval but it helps to know this in the process.

Closing costs of $9,000 on a home that is less than $85,000 seems a bit high to me. FHA requires a down payment of 3% which would be about $2550 on a $85,000 house:


http://www.hud.gov/buying/index.cfm#loan

As for closing costs they can include

  • The appraisal fee and any inspection fees
  • Actual cost of credit reports
  • Lender's origination fee
  • Deposit verification fees
  • Home inspection service fees up to $200
  • Cost of title examination and title insurance
  • Document preparation (by a third party not controlled by the lender)
  • Property survey
  • Attorney's fees
  • Recording fees, transfer stamps and taxes
  • Test and certification fees, water tests, etc.

    http://www.hud.gov/offices/hsg/ramh/res/sfhrestc.cfm


As far as cash investors being able to pay closing costs... most short sales are "as is" and the buyer has to pay the closing costs but just so you know... money is money irrelevant if the buyer is a cash buyer or is getting financed. I have worked with many first time home buyers who have been successful with short sales and bank owned properties and would not let this deter you.

FHA is still a great opportunity coupled with the $8000 first time home buyer tax credit... first-time home buyers still have some purchasing power.

~ Lana
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July 27 2009
If a bank owned property recieves several offers that are cash or conventional financing they will generally accept those over and offer with FHA financing. The top reason is that FHA may require certain things to be repaired on a home and they want to sell them "As Is". While FHA standards are not as strict as they used to be, it does present a problem for those using the program when it comes to competing against cash or conventional offers.As for closing costs, there are ways to get around that, typically raising your offer to incorporate the costs you are asking the bank to pay. You may not be able to do that based on several factors but you have to evaluate each offer and see if that is something you can or are willing to do.

There are too many variables in your situation to discuss each possibility. If you'd like further assistance feel free to contact us.
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July 27 2009
Profile picture for urbanprincess
It not only happened to you with FHA loan pre-approval. I have been making offers since early May. I have a conventional loan pre-approval with 25% downpayment. I added even 25 -30% more on my offers than the asking prices. I didn't get any offer accepted. My realtor told me that the sellers perfer conventioanl loan though.
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July 26 2009
 
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