After You Find A Home           

After viewing several properties you will probably find one that you may have an interest in making an home purchase offer. While there may be some apprehension, your Realtor should be able to help calm your nerves.

If you have taken the right steps, such as working with the right Realtor and getting pre-approved by the right Lender for your FHA loan, the only thing left is getting an accepted home purchase offer and doing the proper inspections.

Before or when you are about to write an offer to purchase a home you should make sure that both your Realtor and Lender talk about your offer. If your Realtor does not know how your Lender structured your FHA loan financing, it could end up costing your more or cause you to have to renegotiate your purchase offer at the last minute.

One of the items that is specific to FHA is that there are some charges that are not allowed to be paid by the buyer. These are called NON-ALLOWABLES. Generally in the purchase offer the seller is asked to pay for these items. Your Realtor must know what these charges are in order to ask the seller to pay them. If your seller does not pay them, your Lender may pay them, but this may result in a higher interest rate on your loan.

The other item that the seller may pay is any of your other closing costs. This could be such items as origination or discount points, title charges, pre-paid items, or other closing costs. While this is not required of the seller, having the seller pay some of the buyer’s closing costs can reduce the buyer’s amount of cash needed to close. This is a very effective strategy for first time buyers who have very little cash to work with at this time. If you are asking the seller to pay some of your closing costs associated with your FHA loan, you are now becoming a terms buyer and will probably pay slightly more for the home than a person with cash for their closing costs. Sellers generally have a “bottom line” net sales price and will not go below that number to pay for buyers closing costs.

An example of this would be a home that is listed for $100,000

In this example the seller’s “bottom line net was $97,000. The seller will net approximately same amount under either scenario. However, the buyer in Example #2 will reduce his closing cost by approximately $2,500. Since his purchase price is slightly higher, the buyer will have a slightly higher mortgage payment of approximately $18 per month. This can sometimes be a better strategy for a Buyer that is tight on funds to close their loan. Again this is why your Realtor and Lender should work as a team in helping you with your purchase.

Other than the final home purchase offer price there are several other items that you should review. The date of closing, time allowed for inspections, review of any homeowners associations bylaws, date of possession, amount of earnest money deposit, proration of taxes and assessments, and a few others. Ask your Realtor to give you a copy of a blank purchase contract so you can review it prior to actually writing your offer. You want to be familiar with the purchase contract prior to finding that perfect home. One of the things about writing an offer that makes people nervous is that they are not familiar with the contract and things can seem overwhelming the day you find the “perfect home”.

One of the other forms that should be included with your offer is the FHA Amendatory Clause. While this should probably be used on every transaction it is generally only found on FHA loans. This form gives the buyer the right to cancel the offer if the property does not appraise at least as much as the purchase price. This seemingly unimportant document can save a buyer thousands of dollars. Most contracts make no mention that the property has to appraise for the purchase price. Without this clause, the buyer would have to come up in cash any extra amount need. The Lender will only lend off of the appraised value or the purchase price, WHICHEVER IS LESS.

Once you and the seller come to terms on an acceptable purchase offer, there are several other steps that have to be taken prior to the closing.

The first order of business is usually to order the inspections you requested. While generally the buyer pays for all inspections, everything is negotiable when it comes to a purchase contract. In some parts of the country the seller may customarily pay for a termite or other reports. Be sure to discuss with your Realtor who customarily pays for which reports. Some other reports may be well and septic, radon, sexual predators, lead based paint and a whole house inspection.

One of the most import reports you should order, regardless of who pays for it is a Whole House Inspection. While not required by FHA, this report will give a buyer a good sense of the condition of the property. Even if you think you know what is wrong with a home, it is a good idea to have the inspection performed. For one of the largest purchases people make, the few hundred dollars spent upfront can help avoid purchasing a home with very costly repairs.  FHA requires the the buyer sign the "For Your Protection: Get a Home Inspection" form no later than the date you sign the purchase contract.  Otherwise the purchase contract will have to be re-executed by all parties.  As of December 20, 2004, HUD will now allow the form to be incorporated in the standard state sales contracts.  All of the language must be in the contract or the buyer will have to sign the stand alone form. 

Be sure to see the section on Home Inspections

After your inspections are complete, your lender will want you to have an appraisal completed. Most lenders have the buyer pay for the appraisal either directly to the appraiser or through money collected upfront for the cost of your credit report and appraisal. Many buyers may the mistake of thinking that the appraisal is for their benefit. This is actually slightly incorrect as though it is for the buyer’s loan; it is really for the lenders benefit.

Just because a buyer and seller agree on a purchase price, does not necessarily mean that a property is worth that purchase price. Sometimes a buyer unknowingly may have overpaid or the property may not be insurable through FHA.

To learn more about the appraisal processes look under FHA Appraisals