How FHA and VA Loans Affect Your Offer
If you are obtaining a VA or FHA loan in order to finance
your purchase, you must include that information in your
offer. This is because government loans place additional
financial and performance obligations on the seller.
Non-Allowable Fees
First, VA and FHA loans prohibit buyers from paying certain
types of fees that are often charged by lenders, escrow
companies, settlement agents, and title companies. They
are called "non-allowable" fees. They still get
charged anyway, but as the buyer, you are "not allowed"
to pay them. The result is that the seller ends up paying
them instead of you.
Most of these "non-allowable" fees come from
your lender. By the time you are making an offer you should
have already been pre-qualified by a loan officer, so you
or your real estate agent can ask how much the lender’s
non-allowable fees will be. Experienced agents should also
have an idea of what non-allowable fees will be charged
by the escrow or settlement agent and the title insurance
company.
Since these are fees the seller would not pay on an offer
with conventional financing, this information must be included
in your offer. You should also realize that since the seller
will be paying these additional fees, they may be a little
less negotiable on the price.
VA and FHA Appraisals
Home appraisal inspections on FHA and VA loans are a little
more detailed than on conventional loans (and more expensive).
The appraisers are required to perform certain minimum inspections
as well as evaluate the market value of the property. Although
these inspections are not as detailed as a professional
home inspection and should not be considered a substitute,
sometimes repairs are required.
These are additional costs the seller would not be obligated
to pay for someone obtaining conventional financing, so
your offer should include a maximum figure for these repairs.
Otherwise the seller is signing the equivalent of a blank
check, and they do not want to do that.
At the same time, whatever figure you put in will most
likely affect the seller’s willingness to negotiate on price.
If you put $500 as an estimate, the seller may be $500 less
negotiable on their price. If no repairs are required, you
may have been able to get the house for $500 less than what
you and the seller agreed on as the price. The solution
is to add a clause to your offer that goes something like
this. "If required repairs cost less than the maximum
amount allowed, the excess will be credited toward buyer’s
closing costs."
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