On January 1st, 2015, the Department of Housing and Urban Development reduced the FHA mortgage loan limits back down to pre-2008 levels in 688 counties nationwide. Most of the counties in Colorado experienced only minor reductions to their limits. However, due to Weld County’s high composition of many small towns and rural areas, HUD officials determined that it’s FHA loan limit was due for a major reduction. As a result, the FHA loan limit in Weld County which covers part of the northern Denver suburbs was reduced by a whopping $146,050. It was reduced from its former level of $417,000 down to $271,050.
Northern Suburbs Real Estate Hit
These FHA loan limit reductions couldn’t have come at a worse time for many Weld County buyers. Colorado’s natural beauty, flourishing economy, and lenient marijuana laws, have created an unprecedented number of people moving to our state. This record migration, coupled with ultra-low mortgage rates and high rents have come together to create the “perfect storm” in the Denver housing market. This “perfect storm” has succeeded in pushing Denver home inventory to record low levels.
Recent statistics from the Denver Metro Association of Realtors show that Denver typically has an average home inventory of 13,710 homes from December 1st, to January 1st, (over the last 10 year period). To put that in perspective, the Denver market had an average inventory of just 4,171 homes in January of 2015. This means that there are normally 69.6% more homes in the market than buyers currently have to choose from.
The following data should also help put it in perspective. MLS sales data taken from year ago (from 2/10/14-3/10/14) showed the following (when the FHA loan limit was still $417,000):
- Erie: 2014, 70.2% of the (single family) homes sold qualified for FHA.
2015 4.2% of the currently listed homes now qualify for FHA.
- Dacono: 2014, 100% of the (single family) homes sold qualified for FHA.
2015 18% of the currently listed homes now qualify for FHA.
- Frederick: 2014, 100% of the (single family) homes sold qualified for FHA.
2015 0% of the currently listed homes now qualify for FHA.
- Firestone: 2014, 100% of the (single family) homes sold qualified for FHA.
2015 21.8% of the currently listed homes now qualify for FHA.
To add injury to insult, the current “inventory starved” market has created an environment where many sellers have come to expect multiple, competing offers, that often result in sales well over asking prices. This factor often squeezes out FHA buyers even if the dollar amount of the home is still within FHA loan limits, as many sellers opt instead to choose offers perceived to be “stronger” due to their conventional loans and their higher down payments. The presence of a high down payment, guarantees that a conventional buyer who is bidding well above asking price can still complete the transaction at the contracted price, even if the appraisal comes in low. This is typically a guarantee that most FHA borrowers with their 3.5% down payments simply cannot offer a seller.
FHA Mortgage Loans Are Obtainable
Many potential FHA buyers reading this article, are probably feeling pretty discouraged by now, and certainly asking themselves, “Is there anything I can do? Or, am I simply out of luck?” Fortunately, there are a handful of strategies that can be employed to greatly strengthen the odds of any FHA borrowers currently finding themselves frustrated by the current market. As a successful North Denver agent, I have had some real luck employing the following strategies for my FHA clients looking in Weld County.
- Offer to limit any post-inspection repair requests to items required to comply with FHA home standards such as peeling paint, required handrails, and missing flooring, etc. otherwise accepting the property in as-is condition. This will go a long way with sellers, especially those who have had a negative past experience with a buyer who presented them with a long or expensive list of post-inspection repairs.
- Offer to pay some ,or all,of your own buyer agent’s commission out of pocket, and reduce the commission the seller is required to pay, by that amount. This strategy works well, because it nets the seller more money, without having to depend on the appraisal coming in at an unrealistically high amount.
- Structure your offer as high as the similar comps in the area support, for the home you’re offering on. Then, make sure your agent sends those comps to the listing agent and demonstrates that the appraisal will likely support your offer, based on those comps. Every seller likes a high offer, but none of them like offers that appear unrealistic, or unlikely to close. Showing that your agent has done their homework will go a long way toward having your offer seriously considered.
- Watch the market for new listings that appear early in the week, on Mondays & Tuesdays, and submit your offer FAST when a good one pops up early in the week. Experienced agents know to always start their listings on a Thursday or early Friday, to ensure a rush of heavy weekend showing traffic. Inexperienced agents, (or overly anxious sellers) sometimes foolishly bring listings to market early in the week. If you catch one of these early enough, you can sometimes convince a seller to put you under contract quickly (before the weekend brings them a big stack of competing offers).
- Have realistic standards and lower them a bit if you don’t! The houses that are full of the nicest upgrades are always the ones with the most competing offers. Your odds of getting a house are going to better, if you’re willing to take a house that may still have some room for cosmetic improvements. The buyers with big down payments, are more likely to hold out for the houses that already have “all of the upgrades.”
- Don’t give up, or get frustrated with the process! It may take 8-10 offers or more, before you get one accepted! If you give up easily, or refuse to house hunt at least 5-6 days per week, your odds of getting a house under contract fall dramatically!