Do Offers With FHA or VA Mortgages Cost Sellers Money?

I pre-approved a buyer with a VA home loan last summer and she’s been having a tough time getting an offer accepted.  Many Southern California sellers are banks or upside-down sellers who need bank approval for a short sale.  There is a strong bias against accepting offers with government financing among asset managers, lender loss mitigation departments, and even equity sellers because of the myths associated with “mandatory seller-paid costs”.

I’ve been encouraging buyer’s agents to ask the listing agent to call me before presenting the an offer with government financing so that we can discuss the financial implications of the loan to the seller.  In some cases, I attach a copy of How To Get An Offer Accepted With An FHA or VA Mortgage with the pre-approval letter so that we can debunk the most common myths associated with government financing:

  • The low down payment requirement means less skin in the game
  • The (misguided) perception that the seller must pay for some or all of the buyer’s closing costs
  • The (false) belief that VA and FHA appraisers are (a) less generous in their valuations and (b) more restrictive in the remarks about property condition.

The key phrase a buyers’ agent can insert into the residential purchase offer that addresses the financial responsibility of the seller is:

Seller not responsible for any buyer closing costs, regardless of the selected loan program.  All agency-related “non-allowable” costs to be borne by lender.

This language addresses the non-allowable closing costs issue pretty well with sellers.  When they realize that their financial responsibility is nil, they are more open to the offer.

If you’re having problems getting an offer accepted, with government financing, use that phrase in your offer and ask your agent to highlight it with a bold marker.  That seems to be working here in Southern California.