By John Rapasky
Did you know that if a home has water spots on ceiling tiles, broken windows, is missing a stove, or missing cabinets or countertops, the lender may not lend on the property? There are many properties that are very well priced, but they are in disrepair or missing pertinent household items. If this is the case with your property, make sure you work with your lender. There may be ways to overcome these deficiencies and still get a loan on the property. This post will discuss some of these options.
One way is for the parties to negotiate the repair of the items before closing. As long as the items are repaired before closing, the lender will loan on the property. However, there are competing interests between the buyer and seller that can make this a difficult proposition. For example, the buyer will not want to pay for repairs on a property that it does not own. The seller will not want to make the repairs in the event the buyer cannot qualify in the hope of holding out for a cash buyer. Nevertheless, if you have a willing buyer and seller, the parties can find a mutually beneficial ground. For instance, if the buyer is approved, you may consider an offer to make the earnest money non-refundable, have the seller make the repairs, and if the buyer does not close, the seller will keep the earnest money in exchange for the completed repairs.
There are specific loan programs that are tailored for distressed properties. If the buyer has a conventional loan, you may want to consider an escrow holdback to repair the items after the close of escrow. The items would have to be approved by the lender before close for completion by the contractor after close. The cost of the repairs would be deposited with the title company, for distribution directly to the contractor after completion. There are construction loans, where the cost of improvements can be included in the loan, such as the FHA 203(k) loan. If the home is owned by Fannie Mae, the Homepath loan allows for light renovation.
In sum, the fact that the property is distressed should not discourage the parties from obtaining a loan to finance the transaction. If the parties work together, or the buyer finds the right loan program, the loan can close. We can help buyers work through these issues and are happy to help you.
John Rapasky is the President of the Counsel Mortgage Group, LLC. You can learn about them at www.counselmortgage.com. Copyright © 2009 Counsel Mortgage Group®, LLC
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