Like anyone else, I love it when I get a cash offer on one of my listings. That is rare, but it is also nice when we get an offer that has terms including a healthy 20-30% or larger down payment. That doesn't happen all the time either. What is keeping the lights on in Westchester real estate is the FHA mortgage, which was unheard of 5 years ago, but is now more common than any other program for starter and medium homes.
The minimum down payment on an FHA loan is 3.5%. For the math-challenged, that means the buyer will be financing 96.5% of their purchase. In a county where FHA loans were once as rare as hens' teeth, this causes some consternation among some attorneys who have grown accustomed to picking the low hanging fruit for decades. I always shake my head when we have a perfectly good offer torpedoed by the seller's attorney simply because they have never closed an FHA loan. Here are some of the stupid things these lawyers say:
- How can these people qualify for a loan if they are only putting 3.5% down?
- I can't let us get tied up under contract with buyers with no money.
- I won't send contracts to anyone putting less than 20% down. It is irresponsible to get in bed with such a risky loan.
In the earlier part of the 2000s, the maximum FHA loan limit was a scant $240,000 when the median county sale price was twice that amount or more. At one point they raised it to $340,000, but by then the median price in Westchester was over $700,000. FHA mortgages were therefore, as I have said, very rare. But worse than that, their unavailability created a vacuum that the market filled with sub prime loans, piggy back second mortgages, and numerous other exotic, unstable financial houses of cards. The rest is history.
After the meltdown, the FHA loan limit was raised up to $729,500 to get things going again. Instead of creating a void, FHA was now filling the void
left by overcautious lenders who wouldn't fork over money without a barrel pointed at them by a guy in a ski mask. While the market didn't rebound enormously, money was circulating. Earlier this year, the FHA loan limit was scaled back to $625,500, but lawmakers recently voted it back to $729,500
. However, the point was that the program was relevant to Westchester home buyers seeking a solid financing options that didn't require a 20% down payment.
But it is that down payment that a small minority of lawyers here cannot seem to get their mind around. Buyers who qualify for an FHA loan are every bit as likely to close as buyers who qualify for a conventional mortgage with 20% down. There is no difference, especially when the seller is paid at closing. They are still getting their money. Read that again. Shout it from the mountain tops. It is the truth.
I say that as a former loan officer and as a broker who has probably closed over 100 FHA transactions. Attorneys who do not understand the FHA down payment rules and view the lower downpayment as "risky" not only do their clients no service, they are exposing themselves as being uneducated about the real estate market in 2011. FHA is now part of the Westchester real estate landscape. If you are an attorney and that is news to you, get educated and serve your clients better.