If you are a first time home buyer, you may sit down with a lender and discover that the loan you best qualify for is an FHA loan.  Maybe you have heard that sellers in our current market are hesitant to accept FHA loans, and statistically it does seem that FHA is being accepted less and less.

In August-September of 2017, 1,205 homes closed in York county.  785 of those homes (65%) stated they would accept FHA financing. 318 of those homes (26%) did closing with FHA financing.

In August-September of 2022, 1,190 homes closed in York county. 679 of those homes (57%) stated they would accept FHA financing. 141 of those homes (12%) did close using FHA financing.

In June-July of 2022, 1,275 homes closed in York county. 752 of those homes (59%) stated they would accept FHA financing. 175 of those homes (13%) did close using FHA financing.

While those sellers stating in their listing that they will consider FHA financing holds somewhat steady, the sellers that are actually agreeing to accept an offer with this financing are going down.  So what is a buyer to do?

Well, first lets look at a few details of FHA. FHA financing requires a credit score of approximately 640 or better, the required down payment is 3.5%.  These are are not of huge concen to a seller, provided you can pay the down payment, and you have the appropriate credit score, the seller is willing to entertain your offer.

However, the proplem for many sellers lies in two other aspects of the FHA loan. First, a buyer with FHA financing can request that the seller contribute up to 6% of the sale price to assist the the buyer in paying closing costs this is called "Seller Assistance."  This means that if you have a pre-approval of $180,000 you can ask that the seller contribute up to $10,800 of their gross proceeds to help cover your closing costs. It goes without saying that many sellers are hesitant to do this.  The second issue that many FHA buyers will run into is that FHA appraisals are much more strict than conventional loans. Leaking pipes, missing shingles or flashing, signs of water damage in the basement, lack of GCFI outlets in the bathroom or kitchen, switches and outlets that do not work, problems with the water heater, furnace, and air conditioning, all of which may be overlooked by a conventional loan appraisal will more than likely be flagged and the repairs required to be completed prior to the final approval of the loan with an FHA appraisal.  Not only does this cost the seller money it may delay the closing date.  All things considered, if the seller can choose between an FHA loan, and a conventional.  Conventional is always the better way to go from their perspective.

Now, before you throw up your hands, and say, "I cannot get an FHA offer accepted, so why try," there are a few things you can do.

1.) When you submit an offer on a home you will put down an Earnest Money Deposit.  This is a good faith deposit typically due within five days of both the buyer and the seller signing the contract.  This good faith payment will be applied to your down payment/closing costs at the closing of the property. Typically, 1% of the sale price is a minimum amount, so using our $180,000 example that would be $1,800.  It always looks good to a seller if you put down more.  2%, 3% or even more if you can do it will go along way toward helping to convince a seller that they should accept your offer.

2.) Check with you lender to see if you are able to pay more than 3.5% in a down payment.  The larger the down payment the more secure your loan will be, thus making it a better chance that you will qualify for the loan and close on the home. Even 4%, 4.5%, or 5% may help.  Ask your lender if it is possible.

3.)  Avoid the temptation of requesting the Seller's Assistance of 6% closing cost help.  If you need to ask for it try to make it as small as possible, perhaps 1% or 2% at most.

4.)  Consider offering just a little over the asking price, even by $1000, or $1500. This is a little extra proceeds to make up for required repairs.  For all real estate transactions in Pennsylvania, a 2% transfer tax is paid 1% is paid by the buyer, and 1% is paid by the seller.  Consider offering to pay the seller's transfer tax for them in exchange for any required repairs.

5.)  Pay down any debts that you have as much as possible.  The more you can increase your credit score above the 640 minimum the more secure you become as a borrower.

It's an uphill battle for FHA buyers, but it is not impossible. Don't give up.