Ask Erin: How can an FHA or VA buyer compete head-to-head with a Cash buyer?

I get asked this question quite often. FHA and VA financing can sometime seem like the red-headed stepchildren in the financing world when compared to other buyers who are using conventional lending programs or who are paying with all cash.

Why, you ask? FHA and VA loan programs have certain requirements regarding the property's condition. It is common for an FHA or VA appraiser to do an inspection and to require certain repairs. VA loans require a Section 1 Pest Clearance. Also, most FHA and VA buyers need the seller to pay their closing costs...in fact with VA programs, the buyer is not allowed to pay for certain costs (the seller must pay them). Sellers generally prefer the path of least resistence...usually this means that given the choice, a seller will choose to work with a buyer that is using a conventional loan.

Unfortunately, there is a lot of competition for properties in certain areas and price ranges, and if you are buying a home and planning to use FHA or VA financing, you may have a tough road ahead of you when going head-to-head with other buyers.

With short sales and REO Foreclosure properties becoming the rule rather than the exception these days, you as a buyer should be aware that listing prices these days have little to do with the actual market value of the property. These prices are now being set intentionally low to attract lots of attention, and in turn, lots of offers. You really do need to have a firm grasp on the actual market value of each individual property, know how to present your financing scenario in the best possible light, and send the bank ALL of its required offer elements. I suggest you have a frank, in person coversation with your agent, get a grasp on what is happening, and develop a strategy.


Part of the REO asset manager's job in approving which offer to accept in a multiple offer situation is selecting the offer that provides the least risk - the right combo of the fastest close of escrow, shortest contintency period, least amount of repairs, least amount of seller concessions, no appraisal (or likelihood of appraising at the right value for the loan), best and highest net price, etc.

Often times, the best offers that are the least risky are all cash...and yes there are MANY cash buyers out there.

Ask yourself (and/or your agent, who hopefully is helping you with this already) if there is something inherently unappealing in the offer you are presenting. Are you asking for excessive credits for closing costs? How large is your downpayment? How long are your contingency periods? Are items missing from your offer, like a lender pre-approval letter from a specific lender (like Wells Fargo, Countrywide, Chase, First Security Loans, MIC Loans, etc.), current proof of funds to close, a copy of a 1% deposit check, your signatire on a special addendum that is attached in MLS, etc.

Presenting a cleanly written offer may just be the bump you need to get that home of your dreams!