Huy:

Hi Joe

Many of our clients are having challenges using FHA financing on short sales and bank owned properties.  Many sellers and listing agents don’t entertain this.  Would you be able to let us know why this is and possible alternatives?

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Joe Conway:

Hi Huy

The main reason FHA is less desirable on short sales and Bank Owned Properties is many times the properties need repairs to pass an FHA Appraisal.   Banks aren’t willing to do the work so many of these transactions fail.  There’s also a stigma to FHA financing that has existed for years.  Basically, there’s the impression that FHA loans are a lot tougher to close in general.  It’s not factual though.  FHA loans in this day and age are not only common, they are becoming the norm.  If the loan is packaged correctly, they usually get to closing without any problems.  It’s important for your clients to use a lender who not only offers FHA financing, but knows exactly how they work.  On top of that, what many realtors don’t know or want to entertain is utilizing an FHA 203K Rehab loan program.  This program can and has in my experience saved transactions because of the ability to close a loan and do repairs or improvements after the loan closes.   We have an FHA 203K specialist in my branch that knows the ins and outs of this program.  Most lenders don’t want to take advantage of this program because it does take more work, but in the end it’s about getting the deal done and we specialize in this program.

Conventional financing seems to be the most desirable option for Bank Owned Properties and short sales because usually there’s a larger down payment involved and there’s the impression the appraisal is less stringent.  That may be true to some extent, but a conventional appraisal may still come back with repairs that can kill a transaction.

There are programs specific to certain Bank Owned Properties.  For example, on Fannie Mae Bank Owned properties there’s a program called Homepath that enables a buyer to put as little as 3% down with no mortgage insurance and no appraisal is required on primary residence purchase transactions.  You can also put as little as 10% down on an investment property with this program with no appraisal or mortgage insurance.  It’s  my opinion that you’ll see more programs like this with bank owned properties.  At some point getting some of this inventory off the market will require special financing options.  You can check Fannie Mae listings that offer Homepath financing by going to www.homepath.com

I hope this helps your clients.

Joe Conway, Branch Manager, Prospect Mortgage

Joe Conway

Branch Manager

Prospect Mortgage

1211 NW Glisan St. Ste. 203

Portland, OR.  97209

503-228-1216  Office

503-320-3162  Cell

503-228-5806  Fax

joe.conway@prospectmtg.com

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www.joeconwaymortgage.com

About the Author | Aaron Majors

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Born and raised in Alaska, Aaron came to Portland after serving in the U.S. Marine Corps. Aaron enjoys the outdoors, volunteering, teaching, learning, and being active in the community. Always loving architecture and buildings, it seemed natural that Aaron's passion became Real Estate. He is a member of the Portland Metropolitan Association of Realtors, National Association of Realtors and is always continuing his Real Estate education. He sells Real Estate in the Portland metro area and specializes in selling Homes and has an extensive background in foreclosures, Home Auctions, Short Sales, Bank Owned homes, and investments.