I know, it sounds like a “Help Wanted” ad, but seriously, in this market where supposedly there is a multitude of homes available, I have 22 FHA qualified home buyers in Riverside County CA that are unable to retrieve an accepted offer on a purchase contract. Several of these potential home buyers have made upwards of 20-30 offers on homes, being beat out by overbidding or cash buyers.
4 Realtors that were contacted about this indicate that home buyers with FHA loans come in 3rd on the priority list to other offers. Cash is king, followed by Conventional loans with 20% down and even 10% down with VA loans taking the tail. An agent of Century 21 Award Temecula claims that obviously a cash offer is ideal due to the short escrow time frame, but the Conventional loans with more money down than a FHA borrower at 3.5% reigns supreme because “if there are appraisal issues and there will be, the Conventional loan home buyer has the ability to possibly afford the shortage from the appraised value to the agreed purchase price. They have the potential to meet in the middle. Most but not all, FHA bound buyers will require the seller to reduce not only their purchase price, but will require the closing costs to still be paid for, which becomes a lose-lose for the seller.”
From an undisclosed source, in Q1 2009 within 4 cities of Southern Riverside County CA, 2735 homes were sold, of which 905 were paid with cash. That is remarkable. To say it’s tough for FHA buyers is an understatement.
So how does the FHA buyer whether it’s a first timer or not make it a win-win in this market? Here are a few strategies to work with.
- Obtain a solid, full loan approval. Not just a pre-qual letter. If a loan consultant won’t take the time to completely approve you for a FHA loan in this market of low supply and high demand, walk away and find a FHA Mortgage Expert that will. Your offer packet should include full approval, proof of cash to close (down payment + any closing costs not covered by seller), credit report.
- When approving for a maximum loan amount, know your boundaries and your budget. Then, work with your team (Loan Consultant and Realtor) to find homes that have a list price possibly 10-20% below your maximum. This will leave room to negotiate higher if necessary, but be careful, work closely with your team to make sure the home will actually appraise at or near your offer or you may find yourself back to negotiating with the seller. Remember, we want a win-win.
- Let’s say you have 10% down to spend on a down payment for a $200,000 home, so $20,000. With a FHA loan, 3.5% ($7,000) is required. However, you place a 10% down amount on your offer and proceed with appraisal. Let’s now say the super conservative appraisal comes in lower than your offer price ($190,000). The seller doesn’t budge on the $200k but is willing to still pay closing cost credit. The lender will only lend upon the lower appraised value of $190,000; therefore, an amount will be needed by you to meet the price ($10,000) – and you really want this home. Well, we can take the FHA loan back down to 3.5% down, giving you the ability to help with this shortage. As long as you show you can make the 10% down that you mentioned and you’re willing to make the deal work, its a Win-Win.
Okay, great, now you have some strategies, but you still are not in contract. In Temecula, Murrieta and the surrounding smaller cities, there is a huge issue with supply and demand. Everyone is talking about Shadow Inventory (homes that are foreclosed but not yet For Sale) and that it’s coming this way. Well, it is!
This past weekend a woman stopped by my garage sale and claimed to be an assistant to 4 large banks to oversee their foreclosed homes while they wait to be listed. She gave specific details to 3 distinct streets that had 6, 11 and 5 homes going on the market for 60% off their recent highs. That’s 3 streets, not 3 neighborhoods. These streets have no more than 30-40 homes on them.
The big story about these 21 homes is they are the high priced, big lot, highly upgraded homes that went from $650k-$1.2 million that were sold to the high credit, A-paper clientele that are now finally realizing they can’t hold on to their homes. These are the homes on the big banks books that now are being released and dealt with. These are the homes that couldn’t be saved by loan modifications or reduced principal.
With my 22 buyers and all the others waiting on the sidelines to buy homes like these, inventory will be sopped up quickly. We all must understand that not all parts of the country will react this way to additional inventory. Some areas may continue to see a drop temporarily in house prices to get the multitude of homes off the banks’ books. I say bring out the Shadow! The quicker they are released, the quicker we can begin to rebuild.
Who is the next person you know who is looking to buy a home in Southern California that needs assistance in obtaining full loan approval and putting together a specific strategy to be the one offer that’s accepted over all others? Call 951-506-4663 now for your free strategy session or email me at jonas@jonasloans.com. Be sure to leave your name and number or the name and number of the person you are referring.
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