When you put your home on the market to sell, one of the questions you’ll need to consider is whether or not you will accept an offer from a buyer that is using an FHA or a VA loan. On the surface you may not care too much which kind of financing a buyer is using to purchase your home. But it can make a difference.
For practical purposes of this article, there are 4 basic types of buyers in our marketplace, cash buyers, conventional mortgage buyers and FHA/VA type buyers. Each category is roughly a third of the marketplace.
I’ll get two of the types of buyers out of the way because every home and homeowner can safely advertise that they will accept offers from buyers with cash or conventional loans.
This type of buyer is easy to work with. It’s their cash and they don’t have to answer to anyone. If they like it and you accept their offer, they buy the home, as simple as that. Often times cash buyers only stipulation is that they will on their own behalf or may hire someone to inspect the property to find any defects they may want the seller to fix, or to decide if their potential repairs or upgrades make financial sense to them. More often than not, cash buyers forego the appraisal process altogether.
Next to cash buyers are the second strongest in line when it comes to accepting an offer. Typically conventional mortgage buyers have good to stellar credit and have enough cash to pay for their down payment and closing costs. The only stipulation that lenders impose on conventional borrowers is that the home appraisers for their purchase price. No specific habitability or minimum property requirements are imposed on this class of buyers.
FHA and VA buyers are next in line, and potentially could have contingencies imposed on them by the lender which could make selling your home to this class of buyer a little more challenging.
An FHA borrower is getting a loan that is insured by the Federal Housing Administration (FHA). This type of loan is often times easier to qualify for than a conventional loan. This type of loan is typically for first time home buyers that have very little of their own funds to cover the down payment and closing costs or have lower than normal credit scores that are required to obtain a loan.
The challenge you have as a seller if you accept an offer from a buyer with FHA financing is the condition of your home. The FHA doesn’t actually purchase the loan, they guarantee the loan and then they sell it in the open marketplace after funding so they want to assure their investors that the home is in good condition. This means that the home has to meet a certain set of criteria, the biggest concerns are:
- Health and Safety issues
- Protecting the security of the property, and
- Structural soundness of the property
Once the home is under contract, typically an inspector will be asked to take a look at your home. The inspector will essentially go top to bottom and check for structural and mechanical issues in the home. The inspector will provide a report to the potential buyer and in turn the buyer may request repairs be done to your home based on the inspection report. At this point you have the ability to decide which repairs will be granted by the buyer. Once this milestone has been crossed and appraisal will be ordered on your home. The appraiser has 2 goals, determine the value of your home and determine if there is any repair requirements that
Minimum Property Requirement
VA Guidelines – Chapter 12 of the guidelines at the time of this writing is a mere 24 pages long.
This page has a simplified guideline – http://www.military.com/money/va-loans/easy-to-understand-va-minimum-property-requirements.html
here is a compliance pdf – http://www.benefits.va.gov/roanoke/RLC/forms/CI_Guide_2005.pdf
HUD 4001 guideline pdf – https://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf
A good checklist: http://nationalappraiserroster.com/Resources/Appraising101/FHAVARepairsandOtherRelatedIssues-AChecklist/tabid/231/Default.aspx