This house might need be worth the fight... 15 days into escrow and you found out the house does not meet FHA conditions. Sound familiar, well, it is in these neck our the woods of Southern California.
It seems more than ever we are getting agents and homeowners in the Los Angeles area coming to us with FHA compliance concerns over the houses they are listing and selling. The sellers have made all known "repairs" in the house, upgrades galore, and even had their "handyman" copper re-pipe. All good for FHA? Not quite. The buyers are qualified for FHA financing, but the homes they are writing offers are are not compliance to to FHA guidelines, often finding out well into escrow, despite what they "feel" will pass FHA. Of the 7,000 houses we serviced in the last 4 years, 60% do not meet FHA guidelines. Fortunately, 90% of the time the solution is an easy and a quick fix. The other 10% of the time, there is still a solution, but the cost and time in repair might not be worth the effort to bring the house into compliance.
The real problem is not that houses on the market do not meet FHA guidelines. They can be fixed, escrows can close, and everyone walks away happy with a closed transaction. Here is the real problem. Agents and homeowners do not know the solution when faced with the problem of houses not qualifying for FHA. The problem is "not knowing"; Not knowing what is considered non compliant with FHA property guidelines, not knowing the costs to repair, not knowing financing options for repairs such as 203K, 203K streamline, and Title-1 loans. Not knowing THE PRODUCT that is being sold and how to effectively market THE PRODUCT.
Unfortunately, it does not get any clearer when you are told that FHA comliance is at the discretion of the FHA inspector. Buyers want to know what is approved for them to buy, what is not, and what it is going to take get them approved for what they want without delays. FHA approved buyers do not want to find out 20 days into escrow if the house passes FHA or not.
Solution: Agents can become more educated about the product being sold and how to effectively market it for sale.
How would you answer these questions if you were at a house with a client....
Are appliances required for FHA financing?
What if the dishwasher does not work?
How many layers of roof can exist before we need an entire tear off?
We have cold water, but no hot water. Is that okay?
A/C runs perfect. No heater, but since we live in Los Angeles and really do not need one, is that okay?
We drained the pool for safety precautions. Is that okay?
Two cracked windows, none broken. Will this pass FHA?
Missing screens, are we okay with FHA guidelines?
We are fortunate enough to have some great agents that include us on their team. We tell them regarding FHA approval that it is always subject to the appraiser, BUT we train them to spot potential issues before the appraiser is ever called. They use this information to prepare their offers and negotiate throughout the transaction. Bottom line, they represent the best interest of their clients because they understand that the product they sell is a HOUSE and they have taken the time to understand how to market and sell the product relevant to the current conditions and needs of the clients.
If you have questions on FHA guidelines, here are some helpful links;
PassFHA.com- contact with immediate questions, repair requests.
HUD Property Guidelines- Detailed list straight from HUD
Are you in the Los Angeles area and want help with with minimum FHA compliance repairs. Call us 866.775.8169!
100% guarantee that if we do the repairs, it will pass FHA... for less than you might think!
661.294.1812
25020 Avenue Stanford #110
Santa Clarita, CA 91355
Jerry - Great post and very informative. After eight years as an MLO doing FHA loans, I have learned a lot about what may or may not be of concern in an FHA transaction. Prior to HVCC, I worked with some incredible FHA appraisers who taught me the kinds of things they look for and will comment on in their FHA appraisals. I have always passed this education onto my FHA clients as well as their Realtors.
However, these days, so many FHA appraisers don't seem to operate with the standard FHA guidelines. Not sure if that's because the AMC they are contracted with is owned by the lender who ordered the appraisal and the appraiser wants to make sure they continue getting business from the AMC so they go ultra conservative and way beyond standard FHA guidelines when doing their appraisal. Needless to say, property conditions are the bain of my existence right now and the bulk of my escrow fall-out.
Furthermore, after viewing the propeties online or in person, if I try and express any concerns about the property to my clients agent, I'm am sometimes told to mind my own business and stick to loans and stay out of the real estate part. Nevermind that I've seen more appraisals than they ever will and I just may know a few things about what will or will not fly with my lender or their FHA appraiser.
Anyways, sorry for the long comment but you just hit on a good topic and one that I continue to have to deal with on quite a few of the properties that my clients want to purchase.