FHA and VA Financing Affects Your Offer

Extra Costs for the Seller

If you are financing your purchase with an FHA or a VA loan, this information must be included in your offer. This is important because government loans place additional monetary and performance obligations on the seller.

Non-Allowable Fees

To start out, FHA and VA loans exempt buyers from paying certain types of fees that are frequently charged by lenders, settlement agents, escrow companies, and title companies. These fees are called “non-allowable” fees. The fees get charged regardless, you are just not allowed to pay them. The seller ends up having to pay them instead.

The majority of these fees come from your lender. By the time you make an offer, you have already been pre-qualified by a loan officer, and you or your real estate agent can inquire as to how much the lenders non-allowable fees will be. An experienced agent should also be able to predict how much the non-allowable fees will be from the escrow or settlement agent, and the title company.

Because these fees would not be paid by the seller with conventional financing, it is imperative that this information be included in your offer. You may note that since the seller is paying these additional fees, they may not be as negotiable on the price.

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VA and FHA Appraisals

Home appraisal inspections on VA and FHA loans are a little bit more comprehensive and expensive than with conventional loans. The appraisers have to perform various minimum inspections and also ascertain the market value of the property. These inspections are not as thorough as professional home inspections, and should not be considered a substitute. However, sometimes repairs are needed.

These are also costs the seller would be required to pay with conventional financing, so the offer should include a maximum number for these repairs. Without this, the seller would be signing a “blank check,” which they don’t want to do.

Simultaneously, whatever number you put in will very likely affect the seller’s willingness to negotiate on the price. If you put down a $500 estimate, this may make the seller $500 less negotiable on the price. If no repairs are needed, you might have been able to get the house for $500 less than what you and the seller agreed on. The ideal solution is to add a clause to your offer that follows these lines: “If required repairs cost less than the maximum amount allowed, the excess will be credited towards the buyer’s closing costs.” This settles the problem.

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