FHA and VA Loan Impediments
In the current market, sellers generally avoid choosing buyers using FHA and VA loans. Sellers’ agents influence this decision where sellers have a choice with offers from more than one buyer. Why do sellers avoid FHA and VA buyers? What are the FHA and VA loan impediments?
FHA and VA act only as guarantors of loans. These entities do not make loans directly. As a result, a buyer must qualify through an approved FHA or VA lender first. Next, the loan transaction must be second-guessed by the agency (FHA or VA) as to approval of the guarantee. FHA and VA have more restrictive appraisal requirements. This means those additional requirements may affect the final appraised value. Sellers worry about the sale falling through when the appraisal comes up short. In addition, FHA and VA loans require the lowest down payments. As a result, little wiggle room exists for buyers. Since the buyers likely don’t have much down payment to start with, any shortfall in the appraisal likely kills the deal.
FHA loans average 3-4 times more delinquency than conventional mortgages. VA loans fare slightly better with delinquency nearly 2 times higher than conventional loans. Sellers recognize FHA and VA buyers struggle more to buy and hold on to homes. As a result, sellers take a rational approach. They pick conventional buyers first.
Government Agencies
FHA and VA exist as government agencies. The employees essentially can’t get fired. Performance metrics for individuals have a low bar. Changing forms not only requires multiple levels of approval with no timeframe for completion, but also contains an approval signature line for God to ok the change. Well, God doesn’t actually sign, but in effect that’s about the level of approval needed to get anything done. More restrictive appraisal requirements apply.
As a seller, which would you choose to sell your house – waiting on approval by a government bureaucrat or not? Buyers using conventional loans don’t have the second guessing government bureaucrat in the process.
As a buyer, you can be better prepared knowing you can be approved. Buyer education improves likelihood of successfully closing on a purchase and a loan. Pick up a copy of Winning Mortgage, Winning Home to be prepared. You might not avoid these FHA and VA Loan Impediments, but you may create alternatives for yourself. A few bucks up front save hundreds or thousands of dollars and lots of wasted time later.