02-04-2011 07:05 AM
My husband and I are about to put in an offer on a house that has been foreclosed on. Our financing is going to be FHA and we are worried about them being picky about cosmetic repairs and denying us the loan because of it. As far as we can see, the house needs new baseboards, a door frame on one bathroom, the fixtures are missing so there are holes where they used to be, and there are no appliances in the kitchen. We know we will have to get a stove in the house but I was wondering what everyone thinks about our chances of doing regular FHA financing for a house like that? I have heard of the FHA rehab loans but the repairs to this house don't rise to the level of needing contractors so I think it's a bit of overkill. We can afford to do the repairs ourselves so we don't really want to get a loan to cover them.
Also, if they do question the needed repairs has anyone actually done repairs to a house before they buy it?
Any information will be great!
02-04-2011 08:19 AM
In my experience, FHA is concerned with health and safety issues rather than cosmetic issues. The issues you listed should not impact your financing (except the stove - you will probably need a stove), but it really depends upon the appraiser - he/she may add conditions to the appraisal specifying times that need to be repaired. If there are any such issues, he/she will need to go back out to the house and verify that the repairs are done before the loan will close.
I have had transactions in which there were minor conditions attached to the appraisal. In one case, my client bought a stove and installed it for the appraiser, then removed it until close of escrow (no point in storing your stove at someone else's house). In another case, the appraiser was concerned about missing light fixtures and outlet covers. My client bought the missing items at Home Depot and installed them (we figured that if push came to shove we could remove them and return them to the store). Both transactions closed successfully.
I have also had foreclosure sales in which more significant issues were revealed during escrow, and I have successfully negotiated with the bank/seller to make those repairs. Even though the bank will insist on an AS-IS sale, if new issues are revealed in the course of your due diligence, they sometimes will be willing to negotiate (AS-IS works best when you know what "IS" is). They want to sell the property, and unless they have a long line of people wanting to buy it, they will probably work with you. Of course, there is no guarantee that they will negotiate, and this typically only applies to issues that were not known before making the offer, but it's at least worth a try - just make sure you have a contingency for property condition in place until any issues are resolved to your satisfaction and FHA satisfaction.
So, if cosmetic items are called by the appraiser you should be able to address those issues before escrow closes. If there are major issues you may be able to negotiate that with the seller (even with an AS-IS foreclosure).
By the way, I practice in California (Silicon Valley). There may be regional differences that would render my responses incorrect in your local area. Please discuss the issue with your local Realtor. He/she will know the best approach to take.
02-04-2011 08:28 AM
02-04-2011 08:49 AM
Yes, your reasoning is sound. I think it's good to be wary, but if we're talking a few fixtures that aren't going to cost a lot, it's probably worth the slight risk. When all is said and done, you will have a home to call your own, which is very cool.
02-19-2011 08:58 PM
Do not do any repairs to that house, because it do not belong to you and the bank that has this house will sit on it up until FHA decides to close your lone. Which means you will have to reapply for FHA lone again. This happened to me, I waited five months and lost my 3.875%. Do not fall in love with these kind for houses you will find yourself losing out, keep in mind there are other houses out there take your time.
02-24-2011 11:39 PM
FHA has a great program called HUD 203K. It's purposely for "Fixer Uppers".
FHA also has a progam that will allow you to borrow up to 8,000 extra for energy improvements.
See >>> http://www.fha.com/fha_article.cfm?id=69 Lower your energy bills and let the govt pay for it
03-03-2011 02:34 PM
Good info bigbyte, thanks for sharing - I had no idea there were specific programs around fixer uppers. I generally judge a fixer upper to be any house that necessitates repairs beyond mere cosmetic finishing or painting - IE, floor replacement, counter tops, bathroom retiling, etc...