Expert: Jim Root - 9/3/2008

Question
My father is selling his home and has been advised that he has a contract coming to approve but the seller is using an FHA loan for the purchase.  His "experts" have advised him not to deal with this.  Long term liability? points? please comment Pro/Con and explain please.

Answer
LARRY--

Sorry my response to you hasn't been sooner but I had a Medical emergency" that I had to deal with! I only hope my answer gets to you in time to be of help with your Dad's decision on whether or not to accept the FHA Offer!I'm sure your Father's "experts" mean well--but they're s-o-o-o-o WRONG!

But if Dad's "advisors" are basing their guidance on FHA experiences of the past, you should know that up to about 15 years ago, the FHA  Minimum Property Standards (MPS) were extreme! The Home being offered as security for an FHA loan had to be nearly PERFECT/LIKE NEW--and any "deficiencies" found by the Appraiser had to be fixed at the Seller's expense before a sale/loan could close!FHA Appraisers did a very RIGID inspection to ensure MPS and often se eral hundreds, even thousands of dollars in required repairs were  made a condition of the Appraisal.

For the past 15 or so years, FHA has been working on "streamlining" it's Appraisal policies and procedures and has, in the past 5 years or so, become very liberal on their MPS requirements. Homes now need not be "Defect Free," and "minor deficiencies" aren't required repairs, but are "considered in  value!" Only deficiencies affecting Health & Safety of the Occupants, Structural Integrity of the Dwelling and/or the Security of the Loan are items that MUST be taken care of before closing!

FHA is one of the most advantageous, often used financing method used by Buyers, as it calls for the lowest of Downpayments, is easiest to "credit-qualify" for, and interest rates are reasonable!--so it's to a Seller's advantage to accept offers with FHA involvement! And in this "Buyer's Market," Sellers MUST not overlook an Offer! To refuse to sell to an "FHA Buyer" closes the doors to some 50 to 70% of the Buyers out there!

A Seller who closes a sale with a Buyer using FHA financing for the purchase has NO long-term liability, and if the Buyer is going for an interest rate that calls for points, the Seller and Buyer "negotiate" over who will pay!

Dad should probably take the FHA Offer--or at least consider it and make a reasonable Counter-offer to provide for his "best interests". By-the-way, his team of "Experts" should include a LICENSED REAL ESTATE AGENT who can give him CURRENT and accurate advice!

--JIM