Why Do Many Bank Owned Properties Only Accept Cash or Conventional Loan Offers?
Why do many bank owned properties only accept “Cash or Conventional loan” offers? This is a pretty common question right now. It mainly comes down to the issues with physical condition that many of these homes have.
If you are not making a “Cash or Conventional Loan” offer then you are likely using a FHA or VA loan. Both of these loans are Federal government loan programs in that they are either insured or guaranteed by them. Over the years politicians have added in requirements to the appraisals for these loans to check on “health and safety” related issues. If the property has any of those, then the problem must get fixed prior to the closing. The only exception to this is the FHA 203k loan that provides money to fix the loan after the closing–which is why it’s a really popular loan right now.
The banks selling these homes have no idea what condition they are in, they’ve never seen them. Many times the Realtors listing them for sale have never seen the home either. So, given this reality, they want to limit the potential bumps in the road on the way to closing the home. An easy bump (or pothole) to avoid is risking have a FHA or VA appraiser come into the home and require repairs on it–because the bank isn’t going to want to fix anything. This is why they sell all these homes “as is.”
To be clear, I’m not saying it’s bad for FHA and VA loans to have these requirements. Many times it is the only thing that forces issues to be fixed in a home for sale, at least when a traditional seller is involved. But, in the case of the bank owned homes, it has become quite a stumbling block, as almost 50% of the bank owned properties for sale will not accept FHA or VA loans. Yet, more than 70% of the potential buyers for those homes need to use those types of mortgages because they don’t have a larger down payment. It is, as I wrote in an earlier post, the “Riddle of the REO Conundrum.”
The other challenge this creates, is your then have this large group of potential buyers fighting to buy the other 50% of bank owned homes–the ones that actually accept FHA financing. This is creating bidding wars on some properties, where 12-15 different buyers are submitting offers and driving the final price up, well above the original asking price.
This is one of the reasons our new HOP loan is so important. It gives access to the 50% of homes that are “cash or Conventional” for buyers with a loan option which is a Conventional mortgage that has money built in to make repairs and usually only requires a down payment about the same size as a FHA loan. It also provides a way for a VA buyer to purchase one of these homes–which is almost impossible for them to do currently.
If you want to see if you qualify for the HOP loan, you can complete this form.
October 27th, 2009 at 10:15 pm
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