I Want to Change My Loan and We're in Escrow

This is what an FHA loan looks like to a bank

So how does that work?

This can be tough.  It happened to me yesterday and everything is still not worked out.  In this case it was from a conventional (20% down) loan to an FHA (3.5% down).

I don’t know about elsewhere, but with San Diego real estate the FHA loan is always the least desireable for the seller, so there was definitely some serious resistance by the seller when approached about the change.  Sometimes a seller will accept a lower priced offer to take a conventional offer (20% down) instead of an FHA (3.5% down), so we were going from a more desireable loan to a less desireable loan.

Why don’t sellers want to accept FHA?

If the seller is a bank that is selling a foreclosure,  FHA is the anti-Christ or the bogeyman.  They hate accepting FHA offers and they make no bones about it.  The issues at hand are that FHA has stricter guidelines regarding the condition of the property (which the bank has never seen), stricter guidelines regarding delinquent homeowner association dues (how many people are not paying their dues), and owner occupancy rates (how many people live in their condo and how many are renters.)

The dilemma:

These guidelines suddently seemed to be similar for conventional loans yesterday when speaking with the loan officer.  He also indicated that FHA was more “open-minded” for delinquency rates than conventional.  I then spoke with a second loan officer who said that they are paid more to do an FHA loan.  Great, but my client needs a house more importantly than you need a paycheck.  How confusing!

Furthermore, the loan officer had given me a pre-approval letter for a conventional loan with my client coming in with 20% down.  A sum of money which I was informed today that he does not have.  Do you want to bet that loan officers don’t verify income, assets, and employment before giving the pre-approval!?  The proof is in the pudding….

So what happens now?

Well, we’ll have to see.   The seller signed acceptance on an offer and if you change the price or terms after acceptance, everything can be renegotiated and the seller can sell to someone else or accept another offer.

Lesson to be learned: get all your financing done correctly the first time!  “Nuff said.