Chat Plus

Real estate editor Maryann Haggerty and columnist Elizabeth Razzi respond to a question adapted from a recent online chat.

Q Takoma Park: Our recent offer on a house was passed over because our loan was FHA, as opposed to a second buyer's lower bid with a conventional loan. What does that mean?

A Elizabeth Razzi: That seller might have been leery of running into extra hassles and home-repair requirements triggered by the FHA appraisal process. Before the Federal Housing Administration agrees to provide mortgage insurance on a loan, it requires an appraisal by an FHA-approved appraiser. Unlike appraisals for conventional mortgages (those not insured by the FHA), FHA appraisals could force the seller to repair property defects before the loan can be approved. The FHA eased a lot of those requirements in 2005, but a seller can still be required to repair big, expensive defects such as worn-out roofs, inadequate means of getting into or out of bedrooms, seriously defective paint (especially lead-based paint) or evidence of structural problems.

Maryann Haggerty: Home sellers have a lot of leeway on what bids they accept or reject. There's no requirement that they take the highest bid. For instance, they can opt for the bid that promises to close first.

There's a big caveat on this, though, and that is that individual home sellers are bound by laws that prohibit housing discrimination. Federal law says you cannot refuse to sell to someone because of race, religion, gender, color or national origin. Some localities have laws that establish other protected classes.

ER: The FHA is one of the most popular mortgage programs in use right now, so sellers who try to avoid FHA buyers will eliminate much of the market for their homes.

The next Real Estate Live chat will be 1 p.m. June 27.