Does Loan Type Matter?

Does Loan Type Matter?

“Does the type of loan a buyer is planning to get make any difference?”

This is a question that I get a lot, especially when I am helping a seller to navigate through the waters of deciding which offer to take when they are comparing multiple offers. Homes that are in desirable areas, with the right amenities, and excellent marketing are frequently receiving two, three, or more offers due to the extremely low inventory. In fact, the last two homes that my team listed have each received six offers within the first five days on market!

When it comes down to comparing the different loan types, there are differences in how most sellers views the risks associated with each. While one type might be better for a buyer by allowing them to put less money down or purchase a more expensive house, it may not be perceived as the least risky from a seller’s point of view and may prevent that buyer’s offer from being chosen.

In general, buyers who are getting a conventional loan are considered by sellers as the least risky, other than those paying cash, of course. The reason is that sellers believe those who can qualify for a conventional loan are able to meet a higher financial standard for qualification than those getting an FHA, VA, or USDA loan. While this is true, the restrictions for conventional loans have loosened somewhat and conventional buyers may be putting down as little as 5% or even less. Another reason conventional is generally preferred is that both FHA and VA loans have physical condition restrictions that are more stringent than conventional loans. So, if a house is older or not in as good of shape, it may be thought to be less likely to pass the FHA/VA restrictions.

Each situation is different and a buyer’s motivations for using a particular type of loan may not be what they appear to be. Someone getting an FHA loan may be doing so because the rates are better than conventional at that time or someone may be scraping everything that they have together to purchase a home with a conventional loan and may not have the ability to deal with what normally might be a small financial problem during the purchase process.

So, yes, it does make a difference what kind of a loan a buyer is proposing in an offer and there MAY be more risk associated with FHA & VA loans than with conventional loans, but the most important thing is that your agent digs in deeper than just the type specified in the offer. Asking questions to verify or dispel assumptions can be a great tool to find out the real answer and in the end can help you choose the least risky buyer.

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