FHA, VA loans struggle against all-cash offers, reluctant agents
Advocates rail against stigma about programs.
In a competitive real estate market, hopeful buyers do whatever they can to make their offers more attractive to sellers, whether it’s by waiving contingencies or putting in allcash offers.
“The cash buyer is the best buyer,” said Ryan Kluttz, director of production at Paddio, a mortgage lender that works with all types of loans. “They have the most leverage going into a multiple-offer situation, because they usually have the flexibility to decide what they want to waive, and they’re not beholden to any lender or government program saying you have to have this appraisal or you have to have this type of inspection.”
That sometimes leaves buyers who are using a Federal Housing Administration or Veterans Affairs loan feeling as if they’re at a disadvantage.
“I had one buyer that came to me, and they said, ‘We’re not competitive enough because we’re doing a VA loan.’ And I’m like, well, that’s lazy on behalf of whom they were presenting their offers to before,” said Ryan DeLisle of Coldwell Banker Realty in Marblehead. “Some agents will just be like: ‘We’re not even looking at an FHA loan. We’re not doing a VA loan.’”
Established in the 1930s to boost homeownership, the FHA requires a down payment as low as 3.5 percent, significantly less than many conventional loans. VA loans were created to help veterans and their families get a foothold in the post-World War II economy.
“It’s essentially an incredibly hard-earned job benefit,” said Chris Birk, vice president of mortgage insight at Veterans United Home Loans, who notes that VA loans are now 12 percent of the mortgage market. “The government and all of us taxpayers basically said: We’re going to recognize that you gave up a chance to build credit and savings. And in lieu of that, we’re going to help make it easier for you to buy a home.”
But because of the government’s involvement in FHA and VA loans, there are certain requirements during the appraisal process that must be fulfilled. “In FHA, the appraiser looks for things like peeling paint, older roofs, and railings not operating correctly. If they flag these things, then they will need to be fixed by close,” said Jason Niles of Coldwell Banker Realty in Boston. That means having the cash to fix it, in contrast to a conventional loan, with which some issues can be ignored.
Certainly, buyers coming in with all-cash offers will probably rise to the top of the pack. But experts say FHA and VA loan users shouldn’t feel as if they’re playing second fiddle, because a lot of the roadblocks can be dealt with by pairing with an agent who understands the subtleties of working with federal loans.
“You have to explain to the agent, and to the seller, that this is the process, versus just being like, ‘Oh, these can be a headache,’ ” said DeLisle, who closed four VA loans last year. “I just don’t think that they should be automatically at a disadvantage. It’s a stigma about those kinds of loans.”
‘Some agents will just be like: “We’re not even looking at an FHA loan. We’re not doing a VA loan.” ’ RYAN DELISLE Coldwell Banker