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    The FHA loan stigma: Is it discrimination?!

    FHA loans have become widely popular amongst first time home Buyers. The Federal Housing Administration is able (and we are very happy for that) to lend 96.5% of the value of a home to QUALIFIED Buyers thru their FHA loan program. Because of this, families that have the required income but might not have the liquid funds for a 20% down payment can now be the proud owners of a home to grow their families in.

    frustrationHowever, in the real estate industry (as in any other I guess) there is no good without the bad. With the real estate market recovery of the past 2 years, comes the always fluctuating scenario of supply and demand. Listings inventory are at their lowest rates in years and with interest rates being still low, there are a lot of Buyers (including a lot of local and international investors) out there trying to get their hands on any home they can. Anything we list these days is gone in 1-2 days with multiple offers.

    Buyers must be qualified and provide a pre-approval letter with their offer. The financing terms will be described on the first page of the offer (Florida Association of Realtors FAR-BAR 10 contract). Now…here is the pickle: There is this urban legend about FHA loans…that because they require so little down payment, then the appraisals are more conservative, lender required repairs might be needed and that the Buyers are not as financially strong as any other kind of loans.

    See, FHA used to have very strict repair guidelines back in the early 2000’s. However, those guidelines were changed in 2005 and now, FHA loans work just as conventional loans do. It is the lack of education in the industry that is causing this stigma to stick and the only ones feeling it are the Buyers that can’t get a house.

    An FHA Buyer is AS QUALIFIED as any other conventional borrower. They have to provide the same documents, they have to neatly fit within the guidelines “box”, they have to have the cash AND reserves required by the program…and they go thru a lot more scrutiny than other programs. How is them giving a lower down payment even relevant to their ability to close?  I have seen 30% down payment loans NOT close because the Buyers couldn’t provide enough documentation to qualify! I would actually venture to say an FHA Buyer is golden nowadays.

    In the past 4 days, I have presented 3 offers on 3 different houses for ONE of my clients (doing FHA financing). All the offers were 8% OVER list price, and yet….all of them REJECTED! My clients are pregnant with their first child and need a home. We have been more than aggressive with our offers.  How are we supposed to compete with others when we are shut down from the get go?

    It just seems very unfair that the working class people, trying to buy a house for the families, always get to be considered last. I get the term “cash is king”…but COME ON PEOPLE!

     

    Melissa –

     

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