FHA Should Be 1st Choice Loan For Sellers.

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An increasing number of Listings are stating that they will not accept offers from FHA or V/A Buyers.

When questioned the Agents usually claim that these loans impose additional costs on the Seller. This was true up till a few years ago, but no longer. In fact, they have a huge advantage in today’s world.

 When questioned they claim that these loan impose additional costs on the Seller. This was true up till a few years ago, but no longer. In fact, these loans have a huge advantage in today’s world.

The following explains why this is so:

First a little clarification regarding current appraisal procedures is required.

1. As of July 2009,  for all Conventional loans, the selection of the appraiser is governed by the much despised HVCC (Home Valuation Code of Conduct) guidelines from Fannie Mae. These require that no-one involved in the transaction has any control over the appraiser chosen. This must be done by a 3rd party Appraisal Management Company (A.M.A.) who will collect the full cost of the appraisal plus some profit for themselves. There are no requirements regarding the qualifications of the chosen appraiser except for having the required state license. As the A.M.A. gets to keep the full amount of the appraisal fee, they have a strong interest in giving the job to the lowest bidder regardless of where they live and work, or whether they have any knowledge of the market conditions where the property is located. In recent times I have had one appraiser come from Tracy to value a property in the Hayward Hills, and another come in from Benicia to Tracy. In both cases they brought in a valuation 20% lower than the agreed purchase price and blew the deal away. Both prpoerties went back on the market and closed with FHA Loans using a local appraisor.

2. For Government Loans (FHA, V/A) the appraiser can still be selected by the Lender, The agent, or the Buyer as has always been the case. This ensures that the appraiser will be local to the property and therefore have current knowledge of the neighborhood in which the property is located.

Result is that the appraiser can be selected on their merits and qualifications, rather than based on how cheaply they agree to do the job.

NOTE: There are a limited number of circumstance where FHA & V/A loans cannot be used due to the short time between the last time the property sold and the current date. These a typically “Flippers” bought at foreclosure sales, quickly updated, and put back on the market for an easy profit.

This situation is currently the subject of Bills in both houses of Congress and will most certainly result in new guidelines resulting from law, not in response to pressure from one politicslly motivated State Attorney running for Govenor.

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