What kinds buyers are closing escrows in Lake Forest and Mission Viejo? / AKA the problem condo buyers are having with FHA loans

cute condo photoI spent a frustrating week phoning listing agents of Active Lake Forest, Mission Viejo and Laguna Hills condo listings to see if their listing was truly available and to ascertain what kind of buyer’s offers they thought they would be considering.  For one, out of 22 listings, fifteen agents never returned my phone call.  By default, I could tell that they weren’t seriously soliciting offers or they would have responded to my buyer with an 800+ FICO score.  I was able to speak to about 7 of the 22.    Four of them told me that they already had multiple offers and that the properties were available for backup offers only.  The other three told me that the homes were available, but that the buyer would need to pay between $3,900 and $17,000 of the seller’s back HOA fees to be able to close escrow.  This caused me to want to research what kind of buyer is closing escrow nowadays. 

Take a look at the chart below of Lake Forest sales in 2009.  I divided it up into 3 categories.  Low end (entry level) condos under $225,000; Medium-priced condos between $226,000 and $375,000 and single family residences priced over $376,000. Lake Forest 2009 Sales

Amongst entry level condos, the conventional loan (20%+ down) buyers made up 38% of the closed sales. Cash buyers came in at 30%.  This means that 68% of the buyers had at least 20% down.  FHA buyers made up 29% of the purchases.  For Medium-priced condos, 60% of the buyers had cash or at least 20% down while 35% of the buyers used FHA loans.  81% of Single Family homes went to cash and conventional loan buyers while 16% of the keys to these homes went to FHA buyers.

The competition is getting even tougher in 2010.  So far FHA buyer s as a group have a 1-in-6 chance of getting their offer accepted on a home under $375,000.  Not only is the fact that strong, high cash buyers are buying up homes, it is because condominium complexes are beginning to lose their FHA status.   

There are 2 main ways that a condo community loses FHA status:

1)       Once there is less than a 51% owner occupancy rate in a community, FHA loans will no longer be approved.  This means that as investor buyers close escrow (with their cash or high cash offers) and put a tenant in their property, the ratio of owner to tenant occupancy goes down.  Once it hits 50/50 owners or less, it is all over for the FHA buyer.

2)      The other factor at play is delinquency rate.   With the high number of distressed properties, Homeowners Association Dues are behind on many properties.  Once it hits 15%, FHA loan approvals cease.

Communities that were known for their FHA approvals are now losing them.  The agents that sell in them are apprehensive to accept an offer from an FHA buyer because they fear that during the many month short sale process, the complex will lose its FHA standing which would cause the buyer’s loan not to fund.

So what’s a FHA buyer to do so that they don’t miss out on these low priced homes?

  1. If you are close to 20% down, borrow the extra money from a friend or family member to get to that point so that you are not bound to FHA guidelines.
  2. If there is no way to reach 20% down, ask me what we can do together to extract – from the marketplace – sellers who own condos in (highly competitive) FHA-strong communities.  If we can get to the seller before it gets listed, we have a much higher chance of securing the home.

It’s true.  It is a tough time for buyers with low to average down payments.  There is one surefire way to overcome this challenging time.  That is to wait until home prices double again.  The investors will stop buying and much of the competition will be on the fence.  We will once again be able to swoop right in and grab over-priced homes all day long!

You can follow any responses to this entry through the RSS 2.0 feed.

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>