Loan Products

Should You Accept an FHA Offer?

Rest assured that FHA and Conventional are just two sides of the same coin.

Written by D.S. Morgan
March 2, 2024

If you're selling your home, you've likely got two goals:

1. Sell High

2. Sell Fast

As a mortgage broker, we understand both these concerns, (especially the first one). But your second goal, speed, that's one that we have direct power and control over. As a mortgage broker, Home Mortgage Specialists, Inc is faster than a bank (and better too). But, of late we've encountered some concerning features of the changing market.

Seller's are rejecting FHA offers and their realtors are advising this.

We get it, Sellers and their Agents assume that an FHA Buyer is not qualified. They assume that their financing will implode right before the closing.

That implosion could slow things down tremendously and lead to undesirable outcomes for the Seller. It could potentially set them back months in the process.

So, is this reasonable? Does that awful, lower than 500 credit score FHA borrower really exist? Or have they gone by the wayside? We reviewed the data and here's our conclusion.

Is it ok to accept an FHA Offer? 

The easiest way to determine if an FHA Offer is a good offer, is to speak with the loan officer that PreApproved the borrower. Our knowledgeable loan officers, like Nathan Durst, can tell you everything you need to know about the PreApproval they wrote. This can ease some of your worries in specific cases. But, as a general rule, FHA loans do not have significantly higher denial rates when compared to conventional loans.

We reviewed the data from the Consumer Financial Protection Bureau and this is what we found: 

Loan Result Conventional FHA
Loans Denied (2021) 2,380,207 312,890
Loans Funded (2021) 12,274,314 1,375,286
Total Denied Or Funded 14,654,521 1,688,176
Percentage Denied 16.2% 18.5%

Now, keep in mind that not all these loans are purchases. What these numbers show is that there is no large difference in denial rates. When you accept an FHA Loan it is as likely to close as a Conventional Loan.

At HMS, we know this is true because we work hard to ensure that each borrower is good to go when they make an offer. As a general rule this involves several important steps: 

  1. Income, Debt, Asset Analysis - a Loan officer reviews the borrower profile and determines exactly how much the buyer is PreApproved for. They also identify any potential pain points that may come up in the loan process and devise a strategy to overcome them.
  2. AUS - our loan officers are good, but in the event that the ratios look tight, Automated Underwriting is used to determine whether the loan will be accepted by the lender. If things are too tight, the Loan Officer may submit the deal to a lender and run it through their underwriting system.
  3. Education - the most important part. At HMS, Borrowers are educated on each of their loan options so that they can select the loan type that is best for them. If your borrower has an FHA Approval, it's not because their unqualified, it's because the FHA Approval was the best option for them. They are just as qualified as a Conventional Borrower.

The conclusion is simple, based on the data and the diligence that HMS does with each borrower, there is no reason to pass up an FHA Offer simply because it is FHA.

HMS is here to close loans and make happy home owners, and that's something you can always count on.

The Author
Drew (D.S. Morgan) is a writer, web designer and valued team member at Home Mortgage Specialists, Inc.

The articles written at Home Mortgage Specialists, Inc. are carefully researched but they do not constitute a mortgage offer or mortgage advice. As always, if you need a mortgage be sure to consult a Licensed Professional (luckily we have those here).

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