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20% Down and " As Is" Conventiionals Can Have Same Problems as FHA

By Jeff Pearl

Real Estate Agent with RE/MAX Distinctive / LIC in VA

September 03, 2012 12:14 AM

You found the perfect " Fixer-Upper" in a location that you love. You make full price offer using conventional financing, you're putting 20% down, and you've included the " As Is" contingency, you can settle in 45 days. Seller accepts your offer, and everything should be clear sailing to closing. Until, the appraiser shows up; Well, the land and home are worth what the contract price is, but the lender won't approve the loan until certain repairs are made. ( Huge, expensive, repairs). No, they didn't switch your loan to FHA without telling you, they just decided to follow FHA guidelines. Buyers are now required to do the following: (1) Remove the existing asbestos roof and replace with new shingles. (2) Tear down the center chimney to below the roof line and rebuild it. ( 3) Recap the second chimney (4) Rebuild or repair the bottom 7' of chimney in basement where oil furnace is vented into. (5). Demo and replace the rear porch and stairway. (6). Rebuild the stone stairway out front, and repour the concrete steps.

What do all of these required repairs have in common? They are all safety issues / hazards. The seller agreed to let the buyer perform all of these repairs. The seller doesn't want the property, the buyer loves the property, so hopefully it will all work out? Once completed, the appraiser will come back for another inspection, and hopefully approve all of the repairs so they can close. And yes, they have a deadline. We built scaffold yesterday on the outer chimney, and will have to walk the roof to demo and rebuild the center chimney as soon as the rain is over. We'll have to get materials tomorrow, and as soon as brick and stonework work is completed, the roofers are standing by to start. Carpenters are already working on the rear porch and stairs, etc. And you thought buying an old house would be easy!

So even if you use conventional financing, and bought " as is", you could still run into delays that you would normally only expect to run into when using FHA financing. In many cases, it pays to shop lenders, and ask questions before buying a fixer-upper.

Jeff Pearl / REALTOR / Lic in VA

Remax Distinctive / Reston VA

703-727-4876

www.myhomesdb.com/jeffpearl

Equal Housing Opportunity Provider

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Richie Alan Naggar

people first...then business Ran Right Realty - Riverside, CA

agent & author

Another good reason to use professionals when navigating through the Real Estate waters...thank you

Sep 03, 2012 12:29 AM

Lenn Harley

Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA

Real Estate Broker - Virginia & Maryland

Jeff. Isn't that included, paragraph 5, of our Conventional Financing Addendum also??

Sep 03, 2012 07:54 AM

Melissa Marro

Keller Williams First Coast Realty - The Marro Team - Orange Park, FL

Jacksonville Real Estate and Home Staging

We had to do something like this once. Then keep your fingers crossed that after spending all that money nothing changes and the buyers can still buy it.

Sep 03, 2012 08:13 AM

Jeff Pearl

RE/MAX Distinctive / LIC in VA - Lovettsville, VA

Full Service Full Time Realtor

#1- Hi Richie, true, buyers were not expecting this amount of repairs, but they are willing to do them.

#2- Yes Lenn, #5 Lender Required Repairs- Buyers agreed to them, but they should have gotten some estimates before agreeing and starting the work. Looks like they have the money, and would have made the repairs eventually anyway, but now they are under pressure to get the work done on time. I think they'll make it work.

Sep 03, 2012 08:13 AM

Keith Lawrence

Christie's International - Mahwah, NJ

ABR, SFR

I am finding buyers with FHA loans are closing quicker than buyers with conventional mortgages.

Sep 03, 2012 08:18 AM

Chuck Carstensen

RE/MAX Results - Elk River, MN

Minnesota/Wisconsin Real Estate Expert

I have had problems on the few conventional loans I have had buyers use on Conventional. Luckily they the means to get it done.

Sep 03, 2012 09:00 AM

Debbie Cook

Long & Foster Real Estate, Inc - Silver Spring, MD

Silver Spring and Takoma Park Maryland Real Estate

I am holding my breath on one of these right now. It got past the appraiser with just a termite treatment, but still waiting for the Underwriters verdict. Underwriter has the last word.

Sep 03, 2012 09:08 AM

Mike Cooper, Broker VA,WV

Cornerstone Business Group Inc - Winchester, VA

Your Neighborhood Real Estate Sales Pro

Jeff, I haven't run into this yet, but I can certainly see why a lender would make the demands. It could definitely kill a few deals. We'll see, I guess. Thanks for the heads up.

Sep 03, 2012 09:37 AM

Bill Reddington

Re/max By The Sea - Destin, FL

Destin Florida Real Estate

Just went thru something like this. Had a crap appraiser. Got it closed but 56 days later.

Sep 03, 2012 12:02 PM

Christine Donovan

Donovan Blatt Realty - Costa Mesa, CA

Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Jeff - Wow! What a headache and a risk for both the seller and the buyer.

Sep 03, 2012 02:42 PM

Karen Anne Stone

New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX

Fort Worth Real Estate

Jeff: For a property such as you describe, it sounds like what you need is a "non-conforming" loan. Ask your lender if they have any investors who take part in non-forming loans. The rates will probably be a bit higher, but they will get the job done for you.

Their hands are not tied by the same regulations that "conforming" loans have.

Sep 03, 2012 03:58 PM

Jeff Pearl

RE/MAX Distinctive / LIC in VA - Lovettsville, VA

Full Service Full Time Realtor

#3- Hi Melissa, Yes, these scenarios always seem risky to me. A buyer doing all this work on a property they don't yet own. Seems like many things could go wrong.

#5- Hi Keith, I can see where that can happen.

#6- Hi Chuck, think buyers having cash on hand is a major factor in keeping deals like this together.

#7- Hi Debbie, Good luck. Sound slike yours will work out!

#8- Hi Mike, Yes, I suppose when you think about it, a lender doesn't want to risk investing in hazardous money pit that some buyers might walk away from, and a property that will be hard to resell.

#9- Hi Bill, wow, 56 days sounds long, but glad you got it closed!

#10- Hi Christine, It sounds bad, but hopefully when all the major things are done, the appraiser will issue approval.

#11- Hi Karen, They had already went with USAA. I'm not their agent, I just know the buyers. They called us to do the brick and stone work, since that is what I did for 30 years before becoming an agent.

Sep 03, 2012 08:39 PM

Steve Vennemann-Hennepin-Dakota-Anoka contract for deed property-Ramsey-MN

BoardWalk Premier Realty INC - White Bear Lake, MN

Fha financing can be tough. Thanks for the information and good luck.

Sep 03, 2012 09:40 PM

Jeff Pearl

RE/MAX Distinctive / LIC in VA - Lovettsville, VA

Full Service Full Time Realtor

#13- Hi Steve, FHA can be tough, but with old fixer uppers, conventional can be just as tough as FHA. Thanks.

Sep 03, 2012 10:39 PM

Michael Setunsky

Woodbridge, VA

Your Commercial Real Estate Link to Northern VA

Jeff, I just ran into this with a property I had listed. Fortunately, there weren't any major repairs.

Sep 03, 2012 10:57 PM

Brian Kuhns

Coldwell Banker Roth Wehrly Graber - Fort Wayne, IN

Fort Wayne Real Estate by Brian Kuhns

Great information..I've never run into this, but it's good to know. I kind of assumed conventional financing would get a buyer/seller around some of those obstacles more typical with fha financing

Sep 04, 2012 12:13 AM

Michael Regan

The Regan Team Home Loan Group - Petaluma, CA

Home Loan Extraordinaire

From a lenders prospective, conventional and FHA loans don't differ much in terms of property conditions. It doesn't matter if someone is putting 50% down; if the house has issues they're going to need to be fixed. Sometimes small issues can be ignored with a large down payment but it's not a guarantee. In some cases FHA financing is the best on fixers using the 203k product. Every time I hear at a broker tour that the house has "X" issues and won't go FHA, I say to myself, "it won't go conventional either!"

Sep 04, 2012 02:10 AM

Jeff Pearl

RE/MAX Distinctive / LIC in VA - Lovettsville, VA

Full Service Full Time Realtor

#15- Hi Michael, Seems like many monor repairs aren't a problem, but once the repairs approach major and healt and safety issues, we can usually expect lender to require repairs. Glad yours went ok!

#16- Hi Brian, There are lots of agents, buyers, and sellers that think just by using conventional financing, they won't have to do any repairs. FHA and conventioanal can both require lender requested repairs to be done in order to approve financing.

#17- Hi Michael, I agree. Many agents don't know that. They just put in the MLS " No FHA" and think everything is going to be fine. This property would have been good for FHA 203K, but luckily buyers had the cash available to do the repairs.

Sep 04, 2012 09:15 PM

Fred Sweezer Sr. CMI, LLC.

Hud Certified 203K Consultant - Long Beach, CA

HUD 203k Consultant

"Time and unforseen occurrences be fall us all" as the wise King Solomon said" we just have to brace ourselves for it.

Sep 07, 2012 03:15 AM

Jeff Pearl

RE/MAX Distinctive / LIC in VA - Lovettsville, VA

Full Service Full Time Realtor

#19- Hi Fred, Yes they do. I suppose we just need to adjust and deal with things, and try to keep moving forward.

Sep 07, 2012 05:48 AM

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