Recently I have been involved with multiple offer situations, both on the listing (seller) side and on the buyer side. All of the multiple offer bidding events have involved first time homebuyers and in every case, at least one or some of the offers were presented with FHA backed financing.
Sometimes agents rush when they write up the purchase contract, and the offer is not well done; we call that “sloppy” and it’s not helpful to your position as a would-be homebuyer. As a buyer, you won’t know which box needs to be checked or which blank filled in, but there are big areas that you can double check to make sure that your offer is “clean”, which will present you in a more favorable light and increase the odds that your offer will be the one the seller and the listing agent will want to work with.
- If your offer is an FHA offer, make sure that the box on page 1 says so (there are boxes for FHA and VA offers on page one of the California Association of Realtors contract)
- Make sure that the numbers all add up – the initial deposit, the increase of deposit (if any), the loan amount and balance of cash downpayment should all be listed and should add up to the correct number for your total purchase price.
- The “loan terms” are supposed to be specified too. What’s the interest rate? Are there any points being paid – and if so, by whom? Blanks in that area are a problem because you have a finance contingency which relies upon everyone knowing those terms. Be specific.
- It is doubly important – no, triply important – that your offer comes with a solid pre-approval letter.
- Make sure that you give your agent a check, or a photocopy of the check you’ll use if your offer is accepted.
Once the offer is drafted, your agent should go through it with you so that you understand all the clauses and terms. Ask your agent to double check everything; it’s better to take a little longer and make sure it’s right than to get it off fast but sloppy.
Recently I’ve seen a few FHA offers from agents who’d rushed and many or all of the items listed above were off. In one case, the agent didn’t even include the loan amount. In two offers recently, the real estate licensee hadn’t checked the FHA box when the contract was dependent upon it going through as FHA.
Another common mistake with FHA offers: deliberately overpaying at a price so high it cannot possibly appraise. Some agents do this by accident and others as a strategy. The thought is that if it doesn’t appraise (and it won’t in many cases if you come in 25% over list price), the buyer can back out and the seller will probably have to come down to the appraised level or lose the sale. It’s a bad game to play and will usually merit being eliminated in multiple offers as nothing more than transparent game-playing.
What else can you do to improve your odds of success if you’re an FHA buyer, besides making sure that the offer isn’t sloppy?
Work with a great loan officer, mortgage broker or mortgage banker. Some lenders are fabulous with FHA financing and can close in 30 days. Others need 45 days. If you are fortunate enough to work with exceptionally good people and your lender can do it in a month instead of six weeks, you’ll be at a huge advantage.
Try to avoid multiple offers. You will have much higher chance of success if you are not competing against other offers. If you must go into competition, do everything you can to mitigate the FHA element of your offer. Go the extra mile. Consider writing a personal note to the seller and seller’s agent about why you want the home. Include proof of funds. (For more tips, read my series on competing in multiple offers on my SanJoseRealEstateLosGatosHomes.com blog.)
It’s a tough time to be a homebuyer with FHA financing and unfortunately if there are multiple offers you’ll nearly always lose out to conventional loans (and conventional loans will usually lose to all cash buyers).