December 11, 2018
When you have found the home you want to buy with an FHA mortgage, there comes a point where you will have to do the (uncomfortable for some) ritual of negotiating with the seller to arrive at the final price of the home.
You may decide to offer the same amount as the seller is asking for the purchase of the home or you may wish to negotiate a lower price.
When do you stand the best chance of getting a lower price than what your seller is asking?
There are several different aspects to this-much depends on the nature of the housing market, how eager or stubborn the seller might be, whether the seller is willing to make other concessions if the price is firm, etc.
What does all this mean?
When you choose to buy a home with an FHA mortgage loan or any other kind of loan product, one important factor is whether you are buying in a “seller’s market” or a “buyer’s market”. A seller’s market is one where the demand for houses is high and prices may trend higher due to the sheer number of people wanting to buy the houses in the area.
A buyer’s market is one where the housing inventory doesn’t have as much demand and the homes don’t move off the market as fast. The seller is at a disadvantage in such cases because the borrower is coming in at a time when genuine offers to buy may be fewer and farther between.
Some experts advise house hunters to examine the real estate listings in the area where they wish to purchase to see how many homes on the market “inventory” in that area. A real estate agent can help you determine this. The inventory is a way to measure demand. If the housing market has eight months or more worth of inventory, buyers have more power to negotiate.
If a housing market has four months of inventory or less, sellers have more power to stick to their guns and stand firm on the asking price.
But even in a seller’s market, you can negotiate aspects of the FHA mortgage loan with the seller to offset the price. You can ask the seller to contribute up to six percent of approved closing costs (not the down payment) which will lower your out-of-pocket expenses for the loan. This, for some borrowers, is a powerful incentive to close the deal since less money gets paid by the buyer up front and frees up cash for the down payment or any other purpose the buyer chooses.
Ask your lender if there are other ways to work with the seller on loan expenses that have worked in that market; you may be surprised at your options when it’s time to haggle over the price of the home with the seller.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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