Buying a Diamond in the Rough

It may be your budget, or the thrill of doing it all yourself, but you are in the market for a diamond in the rough. But just how rough can a house be before a lender decides not to take the risk on a mortgage?

When you negotiate the contract, make sure that you

include a provision for a home inspection for structural integrity, defects and potential problems. This isn't part of the appraisal, it is a separate detail. A home inspection ascertains the health of the house you are buying. Whether it is a bad roof, leaky plumbing or termite damage, a professional inspector will find all of the major problems. As part of your report, you will receive a list of what needs to be repaired or replaced, the time frame and the potential costs. If you are buying a fixer-upper, you may find that your lender will require an inspection. Some will and some won't. But you should insist on one to protect your best interests. P.S. You will also like to have a financing contingency clause in case your lender decides the property is unacceptable.  Ask me about 203k loans which allow for escrowed repairs. 

What if you luck out and there are no major problems, just minor ones? Maybe the carpet is worn and needs replacing. Perhaps the deck needs a little work. New paint and fresh air could be all it needs.

Minor, cosmetic concerns are usually not strong enough to scare away lenders, but could lead to negotiations between the buyers and sellers. This is where my experience and negotiating skills really come in handy. (Barry Lynn Miller Jr. RE/MAX Properties Unlimited)

If you want certain things repaired by the seller, such as the mailbox fixed and the deck painted, we have to make sure it is in the contract. If it is, the seller must perform. We may be able to have the appraisal include the repairs spelled out in the contract. This can help you when getting the mortgage, as lenders will only lend on the lesser of the appraisal or purchase price. We just have to make sure that it is all in the contract.

Occasionally, your seller may ask to perform the repairs after closing. Many buyers simply ask for a seller's concession. Instead of installing a $5,000 carpet before closing, the seller agrees to reduce the purchase amount by the $5,000 it will cost the buyer to put in new carpeting.

But if you don't have that $5,000 in hand to buy the carpet, don't expect your lender to give it to you. Even if your contract states that the seller will give you back $5,000 after closing, don't expect it to happen. Cash allowances written into contracts can't happen. The lender will not allow the seller to hand over cash at closing. As your real estate agent I will steer you away from this and help construct a sales contract that will please both the buyer and the seller. (Again a 203k FHA loan might be the ticket) But don't expect to come home with $5,000. It just won't happen Lenders are doing their due diligent to insure that it doesn't and I'm sorry but no funny business on my watch.

Buying a fixer-upper can and will be rewarding. You get to choose how you want to improve the home. But it is a lot of work and definitely not for every buyer or lender. Your best bet is to be completely upfront with your lender about your intentions. This will help the transaction to go smoothly. This process of buying a diamond in the rough works really well with foreclosures and you may sometimes buy them at 80% of the value.

In conclusion

It may be your budget, or the thrill of doing it all yourself, you are in the market for a diamond in the rough. But just how rough can a house be before a lender decides not to take the risk on a mortgage?  I do have special financing options for REO and foreclosures that most lenders will not even consider give me a call today if I may be of any assistance.

Sincerely Yours

Barry (Lynn) Miller Jr.

RE/MAX Properties Unlimited