Tag: appraisals

Compare and contrast: VA vs. FHA

VA and FHA loans are both backed or insured by the Federal Government, so realtors often confuse the guidelines between the two types of loans. There are a lot of differences, however, and my friend Jay Vorhees at JVM Lending has the scoop below:

Image result for FHA loan

Appraisals: Similar

We’ll just let this blog, by JVM’s Appraisal Manager, do the talking.  I, Kristin added a few thoughts in brackets afterwards.

Appraisers: Different

The VA loan forces people to use “VA approved appraisers,” which they assign. That often makes the quality worse. The FHA allows us to pick appraisers from whomever we want.

Property Condition: Different

The VA requires clear Section I termite reports, and clear Section II if the items are health and safety risks. FHA allows for “as is” transactions, and does not require a clear Section I.  (There have been some recent changes regarding this, but not every lender is aware of them)

Closing Periods: Different

For VA loans, you need 21 days to close them because appraisal turn times are slower, and it’s generally just a more cumbersome process. For FHA, we can close the loans in about 14 days.  (Note these are amazing turn times, most lenders need 30 days or more)

Rates: Similar

Both types of loans have lower rates than your typical conventional loans. Lower rates are a major advantage for both.

Mortgage Insurance: Different

VA has no mortgage insurance, which is one of the reasons this type of financing is such a great opportunity for veterans. The FHA, on the other hand, has a mortgage insurance of 0.85 percent for most loans, with less than 5 percent down.

Image result for va logo

Up-Front Fees: Similar

The VA has a “funding fee” of 2.15 percent with 0 percent down that decreases with larger down payments. The FHA has an “up-front mortgage insurance premium” of 1.75 percent.

Down Payment: Different

The VA loan allows for 100 percent financing (0 percent down), whereas the FHA requires a minimum of 3.5 percent down.

(Final note:  most condo complexes are not FHA approved as they have not gone through the approval process which has to be updated periodically, I have not found that issue for the most part with VA because usually the complexes get VA approved at the time of building and it stays with the property)

How to get your offer accepted in a crowded market

Our friends at JVM Lending shared a Redfin link recently that had a ton of great information on how to get an offer accepted. I currently have two homes on the market and the amount of offers on each are on opposite ends of the spectrum; I have one with 21 offers, and the other with 6. It’s funny to see that disparity between the two, and strategies to get an offer accepted and/or a house sold, can vary greatly because of it.

Here are some pro tips from the Redfin piece:

Nearly 1 in 4 (23.6%) homes that sold in 2017 went for over asking price, up from 21.8% in 2016. This means that buying a home has become more difficult and expensive in a hot, crowded market. You can’t simply offer the highest price and expect to be selected by the seller. Instead, try other strategies like offering all cash, waiving the inspection, or writing a personal cover letter to the homeowner. Above all, make sure you talk to your agent to create the right combination of strategies for the home you’re bidding on, or for the seller you’re trying to woo.

Here is some information from the Redfin article that breaks down data on thousands of offers written over the last two years, to see how effective these other strategies can be in improving a buyer’s chance at winning a bidding war:

Rank Strategy Improves a Competitive Offer’s Likelihood of Success by… Improves a Competitive Offer’s Likelihood of Success in the Luxury Market (Top 10% by List Price) by…
#1 All-Cash Offer 97% 438%
#2 Waived Financing Contingency 58% 76%
#3 Personal Cover Letter 52% No Significant Gain
#5 Pre-Inspection No Significant Gain No Significant Gain
#6 Waived Inspection Contingency No Significant Gain No Significant Gain

Cash is king, as you can see above. That’s because it allows for smooth, fast transactions without the hassle of loans or appraisals. If you don’t have the means to make an all-cash offer, you can always waive your financial contingency, which means you won’t have to wait for a loan approval. That will still increase your odds by 58%, according to Redfin! However, I find that the cash offers – especially if they are investors – will not be the highest price. On the home that had 21 offers, the key to the winning bid was who removed a portion of their appraisal contingency as the offer was so high we all knew it wouldn’t appraise, but that means the buyer has to have extra cash. That can be tough when it is an entry-level condo.

All this said, sometimes it just takes a personal touch to win over a seller. Writing a letter to the seller can be effective and increase your odds in a bidding war. Fortunately for most buyers, cash is not the only way into a seller’s heart.  Often these letters can forge a powerful connection between the buyer and seller, highlighting shared hobbies or interests, earning a seller’s compassion or trust, or ensuring that the home will be loved and cared for in the years to come.

So, whether you are offering all cash, waiving contingencies, writing a personal letter, or trying any number of other strategies to win the bidding war on the house of your dreams – especially in a saturated market like the Bay Area – always remember to consult your realtor first. He or she will have great insight into the market and what extra touches it might take to get the home, but at the end of the day the buyer has to be comfortble with the offer they are making!