Lakewood CA said:
We want to buy a home that may appraise for less with a FHA loan than the asking price.
With very good credit would it be wise to go with a Conventional loan, or just keep looking?
We like this house very much, but aren’t in a situation to pay cash for the difference of the asking price and what may be an appraisal that comes in less than the the seller is asking for. Anybody have a clue (I don’t).
Franklin Advantage:
A conventional loan is better than a FHA loan when:
1.) You have 10% of the sales price for a down payment
Mortgage Insurance on conventional loans over 90% of the sales price/appraised value is almost or as high as Mortgage Insurance on an FHA loan.
2.) You have a credit score of 700 or greater
Rates on conventional 30 year fixed rate loans have been higher than comparable rates on FHA loans for some time now. With the addition to rates and fees for credit scores below 700; FHA loans price out better for the borrower when the loan is over 90% of the sales price.
3.) You can qualify for a conventional loan.
Conventional (and Mortgage Insurance) underwriting is much more stringent than FHA underwriting.
Regarding the appraisal:
Conventional loans require appraisals just like FHA loans. Appraisers have access to the same comparable sales for both conventional and FHA appraisals. A conventional appraisal and FHA appraisal done on the same house on the same day should appraise for the same value.
FHA appraisals are harder on the property by requiring all health and safety issues be addressed to meet minimum HUD standards but this does not affect the value; only the condition of the property when transferred.
I understand you really like THIS house but i’m sure the seller really wants to sell this house as well. If the appraisal comes in low; have your real estate agent talk to the seller’s agent or the seller. The seller may be able to accommodate you by adjusting the sales price down or offering to pay your loan costs thereby freeing up your funds to meet their higher sales price.
Also, if the value comes in low make sure your real estate agent makes the seller aware that an FHA appraisal “goes with the house” for six months. Any other FHA buyer who comes in after you, they will be obligated to use this appraisal.
http://www.f-advantage.com/fha.php
