Contra Costa, California Real Estate

Many listing agents say no FHA when they do not understand the FHA guidelines. Some have never used the FHA 203(k) programs which are excellent for homes that need repairs.

I don't understand the 90 fix and flip rule. All the normal rules apply and the FHA appraiser still needs to see the home to make sure it's livable. Seems to me these homes are normally in better shape than most. I can't understand why FHA cares?

Wendy, we are in big trouble if FHA finance will work, because we have a mortgage office in my Market Center, and the lender in there, Jeff Bradburn, told me recently that of all the deals he had done lately, only 2 were convention, the rest were FHA. He said very few people are going conventional right now.

Thanks for making me happy that I live in Oklahoma. That is a brutal market condition.

Hi Wendy,

 We see the same 90 Day Rule down here. If you care to, I did a blog entry here on that very subject. The craziest part of it all is that allowing investors back in takes care of those properties that are sub-standard.

 

I agree with you totally! It's amazing to me how many mortgage lenders and Realtors within my market have no clue about the FHA 203K product!!!! This is an excellent product designed, IMO, to help move those REO or sometimes normal market listings that wouldn't normally pass an FHA inspection. It's has been a great stimulator for my business.. For a selller to restrict financing options of any kind (the viable ones, of course) is a complete mystery to me.

obviously the 90 day rule does not prevent the flipping of properties, only access by fha buyers.

also isn't it odd that VA and Usda both govern(mental) organizations don't have such rules.

Wendy,

With the FHA 203k, the first time home buyers can be just like the savvy investors.  They can buy a property that can easily be upgraded.  Once the repairs are done have significant equity.  Also the 90 day rule doesn't apply to large institutions which have a waiver from HUD for the time being.  I am not trying to cut out the investors but would rather focus on letting first time home buyers buy low and build equity quickly using the FHA 203k.  I spend the majority of my time calling REO listings to inform them they need this product to market their properties to a larger group of buyers.  In the Florida market, homes that are in good condition but in the lower price points are drawing multiple bids.  This isn't a good way to find a bargin in my opinion.

Thanks for the post! 

Roy:  Yes, the 203(k) program is excellent.  A buyer can take a distressed property and make it their dream home.  Unfortunately, on many of our REOS we never get the opportunity the SPEAK with the listing agent.  You fax the offer and call a recorded line for status.

Karen:  I'm sure there was some valid reason for the Fix and Flip rule originally.  It has been in place since I started in the business in 1987.  I am willing to bet it is one of those guidelines that hasn't been revisited and revised for the current real estate environment.  It is a shame that the Rule prevents FHA buyers from obtaining some of the best properties.

I am facing issues with fix and flip property's listings being hidden by the agent and selling pre market to investors. Otherwise we have many home available for FHA.

I understand that an investor can be approved for flips less than 90 days on an FHA loan if they were prequalified with the FHA to do flips before they purchased the subject property.  That would allow the property to be sold in less than 90 days.  Am I correct?

Ann:  My point exactly!  95% of the potential buyers are SHUT-OUT of the market.  Part of the reason is that for 10 years our average sales price was so much higher than the max FHA loan that the program was never used.

Joe:  Glad Oklahoma isn't facing the same issues!

Pat:  Yes!!  The investors are turning the tide of distressed properties.  It is true they are also making a profit - but they wouldn't bother otherwise.

Vanessa:  I agree - the FHA 203(k) program is great!  Anyone not familiar with it is losing great business opportunities. 

Jay:  It is true that the 90 Day Rule doesn't prevent property flipping.  It simply prevents 95% of the buyers from purchasing them.  I still ask, who does that protect?  Who does that serve?

Michael:  I am fortunate to have a 203(k) loan officer in my area who does the same thing.  I doubt 203(k) offers would be accepted in my area without that additional service and education from him.

Laura:  Interesting that the fix and flips would be hidden.  Glad you have plenty of inventory that accepts FHA financing.  It sounds like we should be sending our FHA buyers to other states.  Hrrmp.

Hi Dan:  I have not heard of that exception.  Most of the fix and flip investors are purchasing the homes on the courthouse steps and don't know until they day of sale if they will actually buy it - depends on how many bidders and the ultimate price.  Unless an investor could be generally "approved" for fix and flips, that won't solve our problem.

Wendy,

I will show properties only offered conventional or cash to buyers I know are going FHA. Last month I showed an older home in Midtown, but in excellant condition only offered cash or conventional to a buyer who was going FHA. The buyer wrote an FHA offer and got it accepted. The appriasal has been done. No repairs needed. We are closing at the end of the month.

I ignore how they are being offered. I've negoiated many contracts FHA when the seller was not intending to sell them that way.

Wendy: Great post! You bring up some great points. The facts are what they are … banks and private sellers don’t what FHA for a lot of reasons … the length of time it takes and all the last minute conditions that come in at closing. It’s a shame because so many qualified first time home buyers are edged out of the opportunity to buy.

Some listing agents simply forget to check the box for FHA on the listing contract, so it doesn't always mean that FHA buyers are unwelcome. I'd say that my mix of buyers, between conventional and FHA, is about 50/50. Plus, FHA doesn't require a pest report unless the appraiser spots a pest issue.

In Sacramento, FHA buyers are getting shoved down the totem pole on REOs. REO banks also don't want to bother with the 203K program because it takes too long to close -- especially when they have a ton of all-cash offers.

The foreclosure flipping and 90-day rule causes more headaches as well. FHA guidelines allow for flipping after 90 days as long as the value, sans receipts, hasn't increased more than 50%. This is one way it may work. Get the buyer qualified for a conventional loan and submit a conventional preapproval letter with the offer, providing the home has been on the market for a while and is close to the 90-day mark. The seller is generally flexible in pricing on these, too, since it's been for sale for more than 2 months, and the seller is tired of rejecting FHA offers. After the contract is signed, go into escrow. On the 91st day, say, "Oops, the underwriter rejected the file." (And they often DO reject the file because major banks will rarely fund on a flipper with 10% down.) Then, convert the conventional appraisal to FHA, order a review appraisal, rewrite the contract and close 2 weeks later FHA.

Hi Julie:  I did that with my most recent buyers.  Received a rather terse response from the listing agent to "read the MLS" and "don't waste my time".

If the seller has already accepted an offer from a FHA buyer and the appraisal came in $40,000., $50,000. or maybe $100,000. below asking, the seller may not want to adjust the price. But that appraisal stays on the property for FHA buyers for six months. So the seller decides they are not taking any more offers from FHA buyers. Because they have to use the original appraisal. So the seller sits there and waits for the one-in-a-million cash buyer OR the buyer that will pony up the difference. There's not an abundance of them but they are out there. These are not bank owned, I'm talking about but regular sellers. (Whatever that means!)

I have been successful with FHA buyers, but the "FLIP" rule drives me nuts. If an investor hs the cash (and guts) to buy at trustee sale, any buyer should be able to buy the home at market value.

I have been successful with FHA buyers, but the "FLIP" rule drives me nuts. If an investor hs the cash (and guts) to buy at trustee sale, any buyer should be able to buy the home at market value.

Hi Wendy ~ Once again I find myself commenting on something I actually know nothing about! The use of FHA loans has increased significantly in Iowa City in the last year. Sellers refusing FHA loans is not something I am familiar with at all. I'm speculating, but maybe the homes around here are in better shape, because we don't have a big foreclosure market. I'm not really sure, but I can tell you that I've closed with buyers who have FHA loans on really old houses that certainly needed some work.

So I guess the answer to your question is - no - we are not having the same issues with FHA financing in the Iowa City market. Oh, and they don't take any longer to process than a conventional loan either, at least not with the lender I work with who does in-house underwriting.

Denise

Homes will sell much faster if they would eliminate the 90 day rule. I have three homes ready for FHA buyers that have been totally updated. However, we must wait the 90 days to sell. We would get out of this mess a lot faster. It seems Government continues to put road blocks to real estate investors. Is this free enterprise or socialism or?

As bad as I wish sellers would CHOOSE to allow FHA.... the seller has the right to exclude FHA financing.

Many homes simply do not qualify and the lenders don't want to fix them. I see that more often than not in North Texas. Less and less am I hearing about ignorant realtors driving this.

 

 

I share the frustration, I have a client I'm working with that likes to do a little home searching on his own when he's online. He'll send me a list of 10 or so homes, and I have to eliminate about eight of them because they are cash or conventional only.

 

 

Wendy - Oh am I feeling your lenders pain.  That story could be me and any one of my Realtor friends complaining about the REO sellers/banks in our area. 

Down here in SoCA, our market is very similar to yours and Elizabeths (GOT to be a Cali thing).  Driven by short sales and REO's that won't accept FHA and the ones that do don't have a chance in #%!! of qualifying for anything but a 203k.  But like Elizabeth said, the bank doesn't even give my 203k clients offer a courtesy look with so many cash offers available - THAT ARE LOWER THAN MY 203K CLIENTS OFFER!  Go figure!

The reason for no FHA is either because of property condition or lack of 90 days of seasoning.  I'm currently in escrow on one where we got the exception to the 90 rule because it was purchased by Freddie less than 90 days ago.  However, early this year, I had a client who had to walk away from an "REO" because once we got the prelim report, we found out that the "bank" was really a REIT calling themselves a "bank".

A lot of that going on down here too, which is why you see quite a few BOM's and then the REO LA changes the listing remarks to read "NO FHA" because the REIT seller now knows they can't get away with calling themselves a bank.

Wendy: Once the new condo rules go into effect in Nov (just extended from Oct) FHA will even be more difficult due to the elimination of the spot approval.

Although I do not know this for a fact, I think FHA loans are somewhat the victim of being misunderstood here in our market. And when something is different, when something is not understood, that is when it is shunned (think discrimination)

I will also say (which you did not) that I get the feeling sellers are rather smug these days if they happen to own an entry level house....which also happens to be the same house the investor is going after...WITH CASH.

Well, sure, if you are fishing for buyers (referring back to your last featured post LOL) you would rather have an ALL CASH fish than an FHA fish. With so many fishes biting on those kind of properties, I guess they feel they can throw the FHA fishes right back in the water.

Since we are in the same market, let me just say this to put some false assumptions to bed: FHA does not take longer than conventional right now. We are not having problems with FHA appraisals right now. It does not cost the seller more to sell to an FHA buyer...and as you wisely pointed out....

Cash buyers probably believe they can make LOWER offers exactly because sellers somehow believe this adds to the bottom line. IT DOES NOT....but it will be a faster and less risky close and that saves some money.

But does it save enough to justify excluding FHA buyers? Often times....NO

Denise:  Thanks for your comment.  FHA loans don't take longer in my market either.  In fact, given some of the issues with Conventional appraisals, some FHA loans have been closer FASTER than Conventional.

Harry:  Amen to that!  The banks appear to take issue with investors making money.  I guess they would prefer to leave distressed properties as-is and continue to pull down market values.  What's with that?

Tom:  You are absolutely correct - the seller may choose to exclude FHA financing.  It is my guess, however, that your average seller on a "normal sale" isn't making a choice and the listing agent is making it for them.

Kathleen:  In my experience, FHA doesn't corner the market on last minute conditions at closing.  I think that is more a reflection on the experience of the loan officer rather than something inherent in the loan program.

Elizabeth:  I love your creative idea but our inventory is so low (who would have thought it would change so fast!) that the nice fix and flips sell and close well before the 91st day.

Vickie:  I'm glad you brought up the point that fix and flip investors must have cash AND GUTS.  For goodness sakes, they buy a house on the courthouse steps without any property inspections.  While some will produce "excessive" profits, it will be offset by the homes with far greater repair issues than anticipated.  It is not an investment strategy for the timid!

Brendan:  Exactly!  It is very frustrating for a pre-approved FHA buyer to see 27 homes on the market but THEY (and the other 127 pre-approved FHA buyers) can view TWO.

Donna and Elizabeth:  Doesn't the "got to be a Cali thing" get soooo old over time?  Regarding the REO's and 203k offers........what amazes me is that the banks accept a lower conventional or cash offer and then lower it again when the appraisal doesn't come in at value due to repair issues.  Wouldn't be an issue with the 203(k) buyer.

I've also found several agents who don't understand the FHA requirements regarding safety and condition of the property.  It can be very frustrating for both the client as well as time consuming for the agent.  Great post, thanks.

Janet:  Sellers aren't even getting the option to throw-back the FHA fish in favor of the Cash or Conventional fish because they aren't accepting FHA offers.  There mere act of listing FHA financing as an option doesn't require the seller to accept an FHA offer.  They still have the right to accept the offer that has the best combination of terms suitable to the seller.  More offers provides the seller the opportunity for a higher net price. They are missing that opportunity and I doubt most sellers even know the listing agent made that decision on their behalf.

Jeff:  What I find so interesting is that the current FHA requirements regarding health and safety issues are much less onerous than in the past.

A lot of common misconceptions with FHA loans.  Many Agents here think they are going to be a headache, take longer than conventional loans, and attract the "borderline" buyer (a buyer who is barely qualifying via credit or DTI ratios).  In this current lending market, getting a conventional loan can actually take longer than an FHA (thanks HVCC) and the conditions are more rigorous.  You're right about the biggest reason to use FHA loans right now--PMI.  In depressed markets like Las Vegas (and yours), PMI companies won't insure any loans above 90% LTV.  10% down shrinks the pool considerably.  Bottom line for Agents is don't forget to check the FHA box. 

FHA loans are the norm in this area, far outnumbering conventionals at the moment.  There is confusion on the part of some agents about what FHA safety and condiion requirements are - the standards seem to change from time to time and often seem to depend on the subjective opinion of the appraiser.

I haven't done an FHA 203k loan yet, because when I offer them, the clients don't seem to be interested...not sure why. It sounds like a great program! I do know people who have used the program, and they are happy with the results. I also do not have a lender who is able to explain fully the timelines and things to consider, so I don't think they are doing a lot of them either...

I've worked with investors that buy homes to flip and either rent them out to have the home occupied or sale them before the 90 day time period to other investors that want to hold onto properties that are finished.

The original investor makes money from the flip, yet sales at a lower price so another investor sees it as a deal and both make money over the long term.

Wendy,

There is an incredibly easy answer to the problem. I decided to just work with better buyers!!

I'm in the same general market as you are, and I got tired of fighting the "norm" and gave up on all my FHA buyers. Go with people that have the money to buy a home. There's plenty of them out there.

And as a listing agent that's getting multiple offers on all listings, with all things being equal, why bother accepting an FHA loan? It's only the real dogs or overpriced listings that aren't getting multiple offers, and on the real dogs, the FHA might not fly anyway.

My advice, refer out your FHA buyers to someone that likes to take Sunday drives and look at a ton of homes and needs the practice writing tons of offers and likes to be poor. Because that's just the reality in our current market. I'd rather stay home by the pool on a Sunday, then get more "practice" writing offers that go nowhere. Hopefully the banks will release more of their REO's and we will have some inventory to choose from. Then, the FHA buyers might have a chance again.

Wendy - The main issue I face is agents wrongfully entering a listing and not putting FHA.  I've sold a few properties this year that didn't state they accepted FHA, but they did, one was even a REO that did not need work.

I haven't yet run into problems because of the 90 day rule, but do have 1st time home buyers trying to buy to get the tax credit & finding that the price bracket they are approved for translates mainly into condos - which would be fine with them except that the majority of the condo developments are not currently approved to go FHA it seems.  Very frustrating...

Dawn:  If you have inventory that accepts FHA financing, then the work required of a 203(k) would not be appealing.  If that's all a buyer can get, suddenly the extra effort is worth it.

Integrity Mortgage:  That sounds like a win-win solution for the investors - but it still leaves the first-time buyers out in the cold.

Andrew:  From a business plan and income perspective, you are absolutely right.  Call me a bleeding heart or just plain stupid, but I am very aware that for some buyers this may be a short window of opportunity to ever buy a home in our expensive market and they need FHA to do it.

Michelle:  In my response to Julie, I mentioned that I did ignore the fact that FHA wasn't listed and received a terse response from the listing agent to "read the MLS" and "don't waste my time".  Guess I better develop thicker skin and continue the practice!

Nancy:  The lack of FHA approved condos is definitely an impediment.  If you read Janet Guilbault's comment (#28), it will only get more difficult due to the removal of the Spot Approval process.

Wendy... excellent blog and you don't have to sell me on the features of FHA financing or even the 203-k loan. My first 203-k loan was in 1994....   I wrote this post a month ago, Sellers, ignore what your listing agent tells you about FHA loans. -

I think Julie, in comment #16, makes an excellent point, about putting in FHA offers, no matter what the MLS says... why not?  Besides, get the other agent on the phone and then talk about it.  Education is a key and can go a long way. Just educating many of the realtors that still seem to live in the 90's about FHA financing, especially the appraisal issues.

The other ignorant factor and that is misinformation, is that FHA loans take 45 to 60 days. Now, this might be the case with some lenders, especially the bigger banks, but this is not the norm. I am still doing them in 15 to 30 days and I know some other loan officers that I keep in touch with, that can do the same.

Overall, from talking to a few friends and associates in California that are either loan officers or realtors, I think this is even worse in California because in the last 10 years, it was too easy to get a conventional loan. And the majority of the lenders and loan officers weren't FHA approved or had no idea on how to originate a FHA loan. I have a friend that moved from NJ to Cali., who is a loan officer, who has been doing this for 20+ years. She couldn't believe her ears, in regards to what she heard from realtors out there, and what they thought about FHA loans.  And then the other flip side of the coin, the loan officers out there, that just winged it, because they didn't even know the basics about FHA mortgages... very sad, yet very so true and real.  Good post and some great comments...

going conventional right now is horrible with HVCC rules. Why would anyone want to go that route?

with the HUGE FHA market share of loans right now, any seller or agent refusing to deal with FHA needs to have a little reality check.  its the market we live in.  long live the 203k and 203b.  they are both great products!

Greg

I am so glad some others are frustrated with short sales and REO's that don't want FHA. Just getting them to look at the offer is hard. Sent in a FHA offer and thought we might get it because all the offers were FHA, but the listing agent or the bank waited till they got a cash offer for less.

Hey Wendy - just popped in to say hi and congratulate you on your feature, nice to see you up there again.

Now I'll go read your post.  :-)

Wendy- AMEN! I am sooo frustrated.. I have fha buyers and we have been looking for months with nothing.. our offers get rejected even though we are making above price offers and not requesting repairs or closing costs.... So frustrating... I hope the tax credit gets extended... .Sometimes I feel that even though I work so hard, it is almost impossible. I try to explain the situation to my buyers and hope that they undestand this is not my fault and it is the market. I encouage them by letting them know this is the way it is but all the fight we have to put into finding a home will make the rewards that much sweeter when we get into one...

Jeff:  Thanks for the link to your blog "Sellers, ignore what your listing agent tells you about FHA loans."  It is VERY timely for my skewed market and I reblogged it!  Sorry I missed it the first time around.

Amy:  Absolutely! 

Greg: Perhaps all these comments will be the start of a much needed reality check.

Valorie:  Are you serious?  The refused all FHA offers and waited for a lower cash offer?  Was the the Listing Agent or the bank?

Bradster!  Like the hats but where are your instruments?  Always good to "see" you!

Theresa:  I hear you!  I spent 5 months and 6 offers with my last FHA clients.  THEY finally got frustrated, cashed-out a 401(k) and paid the tax penalty. Fortunately, they had the credit score to get a 10% down conventional loan.

Wendy... in regards to Valorie's comment... I have heard of an agent and seller taking a lower offer just because it was a cash-offer...  they ignored the FHA offer...  just so very sad.  No wonder many of us are all screwed up... lol   And thanks for the reblog.

Keep in mind that in some cases FHA loans are not permitted. For example, in our area we have several mobile home parks. If the home is on a rental lot, it does not qualify. If the type of ownership is not fee simple (instead is condo, coop, etc), it will not qualify, if it is located in a 55+ community no can do, etc.

Also, if the buyer is expecting the sellers to pay for a lot of stuff that a conventional loan would not require, example are longitudinal stabilizers on mobile homes, then the deal will likely not be accepted by the sellers. Older homes are also targets for FHA engineers. I will present any offer, but the buyers need to make sure that the home they are looking at will qualify on the face of it. If not, move on and do not waste the time or money on it.

John:  Those are all excellent points.  Condos do qualify if they have undergone the FHA approval process.  For the purposes of my search, I did exclude everything except fee-simple SFRs.

Wendy, I guess I am lucky in that I live in a market where FHA is the king of the loans and I rarely see a seller exclude FHA buyers. 

Wendy and All,

Great Blog, I found myself reading every entry. Everyone is right in their own way. I absolutely agree with Wendy that FHA rules should favor the consumer/end user that HUD/FHA was created to protect (and serve?). NO bank in the USA should have the option to preclude FHA/VA offers, as most of the loans get sold to Freddie and Fannie anyway. This all points to one clear fact: The banks are operating in pious dissregard to any individual's needs. Corporations rule the world.

I digress.

Very useful info on the flip-90 day rule. It needs to be ammended, as it serves no useful purpose right now. Perhaps in areas with 10% or higher unemployment, it should be abolished. Flips create jobs, and the money needs to flow locally to bolster the overall economies. The domino effect of job creation cannot be ignored. HUD....wake up!

Andrew, sit by your pool on the weekends, refer your FHA buyers to me, and when the Cash buyers dry up, and I have the giant sphere of GREATFUL clients, I'll buy your foreclosed home with a pool, and rent it back to you. Keep your SPF45 on, bro, you might have just burned yourself. I think you should post your comments on your website, so potential clients know who NOT to deal with.

Wendy, thanks for the great info, which reinforced what I knew.

Reno suffers all these ailments, but business has been good.

I live in the SF Bay Area and I've been trying to buy a home for the past few months. I never expected the process to be so difficult. Virtually no homes for sale accept FHA, and the few homes that do accept it are bid on extremely aggressively. It's difficult to put into words how frustrated I am with these banks who only care about themselves and not the buyer. I desperately need to buy a home for my family, but how am I supposed to when I am denied the opportunity to even make a bid? 

My husband and I are living this bad dream right now.  We are (finally) in a position to buy our first home.  FHA is our best option for financing.  We are pre-approved, our financing is ready to go - we pour over the listings every night and talk w/ our agent almost daily. 

I submitted 8 listings to her this afternoon that we might be interested in.  ONE would accept FHA financing - and it already has 9 offers on it.  To top it off, this listing just showed up in the MLS this morning - where did all the offers come from so quickly??  We're willing to pay asking price (within our budget!), but it's more and more like trying to win an auction on eBay - "Yes, you met the reserve price, but it wasn't high enough - sorry, try again!"

We have 6% down cash, our earnest money, and our approval letter is a phone call away.  My husband is a high school math teacher, I teach at a vocation college - we are never going to be Andrew's clients (yes, I read all the posts), apparently. 

And it's not that the homes wouldn't pass inspection - the sellers aren't accepting FHA financing.  I'm frustrated, worn out, and angry, to be honest.  Our agent just says to 'keep trying, it'll work for the right house."  I have my doubts and am ready to buy the first house with enough bedrooms and a fenced yard that accepts FHA - even if I hate it. 

Sorry for the vent - I'm in a bad place right now.

Jill,

Thank you for taking the time to comment and express the incredible frustration of being a willing and able FHA homebuyer who cannot find a home willing to accept FHA financing.  I'm so sorry that you and your husband are facing these obstacles!

Houses are expensive and not everyone is able to buy it. Nevertheless, loans are created to help people in such kind of situations.

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