Highlights from this article:
- Yes, a seller can refuse an FHA loan offer from a home buyer.
- You can refuse any offer that doesn’t meet your needs or expectations.
- Housing discrimination, on the other hand, is prohibited by law.
- FHA loans have a closing success rate similar to conventional mortgages.
- The best strategy is to review all offers from an objective standpoint.
Most of the questions we receive come from home buyers who are interested in the FHA loan program. But occasionally, we receive queries from sellers asking about the same thing.
One of the most common questions we receive from homeowners is: Can a seller refuse or reject an FHA loan offer from a home buyer?
The short answer is yes. As a seller, you are entitled to refuse any offer that does not meet your needs or expectations.
But if you turn down an offer from a home buyer simply because they are using an FHA loan, you might be doing yourself a disservice. Many borrowers who use this program are well qualified to purchase a home, and are therefore worth considering.
Can a Home Seller Refuse an FHA Loan Offer?
When selling a home, you are not required to accept the first offer that comes along. It’s well within your rights to review multiple offers and choose the one that you feel is the strongest of the bunch.
The best offer might come from someone using a conventional loan — or a VA or FHA mortgage. It can vary, depending on the situation.
For most sellers, the goal is to sell the house as quickly as possible and for the best possible price. Homewners tend to choose offers that they feel will help them accomplish these goals.
So yes, the seller can refuse an FHA loan offer from a home buyer. Sellers can also turn down purchase offers from buyers using conventional or VA mortgage loans, if they feel it’s in their best interest. It’s your prerogative to choose what you feel is the best offer for your particular situation.
Discrimination, on the Other Hand, Is Never Allowed
As mentioned above, a home seller can refuse an offer that is backed by an FHA loan. Homeowners can reject any purchase proposal they feel is not right for their situation.
But you cannot refuse a home buyer’s offer because of their color, ethnicity, gender or religion. That’s considered discrimination, and it is strictly prohibited under both state and federal law.
According to the Department of Housing and Urban Development:
“It is illegal discrimination to take any of the following actions because of race, color, religion, sex, disability, familial status, or national origin: Refuse to rent or sell housing. Refuse to negotiate for housing. Otherwise make housing unavailable…”
Refusing an FHA loan offer for financial or business-related reasons is acceptable. Rejecting such an offer because of the buyer’s religious or demographic background is discriminatory and unacceptable.
Just Know That Many FHA Borrowers Are Solid
There seems to be a misconception out there that people who use FHA loans are often “weak” or “shaky” borrowers. Some sellers fear that accepting an offer from such a buyer could increase the chance of the deal falling through.
However, industry data show that FHA loans have a similar closing success rate to conventional mortgages. The latest “insight report” from ICE Mortgage Technology showed that 76.6% of FHA purchase loans closed within 90 days, compared to 79.4% for conventional mortgage loans. That’s a narrow gap, and it reinforces the point made above.
So you shouldn’t necessarily refuse an offer from a buyer simply because they’re using an FHA loan. That kind of strategy could work against you.
The best strategy, from a seller’s perspective, yes to evaluate each individual offer from an objective standpoint. Turning down an offer just because the type of mortgage loan being used could cause you to miss out on the strong buyer.
Appraisal and Inspection Concerns Are Often Unwarranted
Sellers sometimes refuse or reject FHA loan offers because they have concerns about the home appraisal and inspection process. While it’s true that the FHA requires an appraisal for all properties purchased through this program, the process might not be as invasive or difficult as you think.
Unlike a conventional mortgage loan, the FHA program requires the home appraiser to do two things. The appraiser must evaluate the property to determine its current market value. He or she must also ensure that it meets the minimum property requirements set forth by HUD.
Some sellers worry that the inspection component will result in a long list of required repairs. But that’s not always the case. The minimum property requirements for an FHA loan are pretty basic in nature. They mostly have to do with health and safety issues.
For instance, the house is required to have a functioning electrical system, drinkable running water, and a serviceable roof. So we’re not talking about an overly strict inspection process here.
It’s true that some sellers refuse offers from FHA home buyers due to inspection-related concerns. But in many cases, these concerns are unwarranted. A house that’s in reasonably good shape without any major structural or safety issues should clear the FHA appraisal inspection process with ease.