Financing in 18976>Question Details

Shelpt, Both Buyer and Seller in Allentown, PA

Can a lender add on a "cost to cure" for a refinance?

Asked by Shelpt, Allentown, PA Sat Jul 4, 2009

We are refinancing through the same lender who currently holds our mortgage. We just settled on the home in Oct 2008. It was a bankruptcy property. We literally gutted the entire house, and put in new everything. New kitchen with granite, hardwood floors, ceramic tile, new tub, toilet, sinks, lighting fixtures, new roof, all new carpet, landscaping etc. We did not move in for 8 weeks when most of the work was completed. The last room not finished is the master bathroom. It is very large, and we are doing the remodel ourselves so it is taking time. We don't need the bathroom because the other 1 and 1/2 baths are completed. Tthe mortgage company will not let me refinance until the bathroom is completed because the appraiser gave its value with the bathroom completed. The mortgage company want us to take out an additional $10000 on the loan, and have them hold it in escrow until the bathroom is completed. They are calling it a cost to cure. This does not seem legal.

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As far I know, this is legal. Your house is collateral for the Lender and according to what you are saying, the collateral isn't in the condition it needs to be to qualify for the loan. Lenders are really sensitive to appraisals right now. Your appraisal was approved with the condition that the home was finished. The value could change dramatically without the other bathroom. As far as I can see, your options are to finish the bathroom quickly or escrow the money until it is. With a "cost to cure" in the appraisal, your loan will most likely be denied.
I wish I had a more palatable answer., but it is what it is.
The very best of luck to you!


Michael D Delp
Mortgage Pro
4802 Old Bethlehem Pike,
Telford Pa. 18969
Ph- 215-453-1025
Fax- 215-453-1012
Cell- 610-762-0318 -
1 vote Thank Flag Link Mon Jul 6, 2009
Well, I am quite sorry for trying to ask for advice. I did post this under the financing section, so I just assumed it would be answered by someone experienced in finance. And, Mr. Holt I am not operating in "2006" and taking out more than I can afford. FYI - the amount I am financing is less than 50% the value of the home. My husband or I could make the pymts on either 1 of our incomes. We also own a vacation home outright and have no credit card debt or car loans.

And what I mean by us doing the work, is that we are hiring our own subcontractors after being ripped off by a general contractor.

I certainly know who I would not use as a realtor now.
0 votes Thank Flag Link Sun Jul 5, 2009
Shelpt - you really should consult an attorney for advice; though the message below could have been worded more tactfully and diplomatically, the suggestion of consulting an attorney is sound. Only an attorney can give you legal advice in this matter. Good luck.
0 votes Thank Flag Link Sat Jul 4, 2009

No doubt you are an experienced attorney. Otherwise, why are you suggesting what's legal and what is not? Of course, if you are not one, perhaps one would do you much better by asking that question on a site dedicated to legal questions, not one aimed at Realtors and their products. None of us Realtors is competent to answer your question.

As a minor point, why do you think it would be Illegal for someone who is lending money based on the security of a house and property to set the terms under which they will lend the money?

Aside from any "illegality," I can easily see the lender’s point. First, you already have a loan to cover what you bought. How good are the changes you have made? While they sound nice, if I were a lender, I'd like to know that the work was done to commercial and building code standards. You say yourself that you are doing the work. Are you really as good as a Toll Brothers contractor? Maybe so, but a lender would like to have a representative check out your work.

The next problem that I see for any lender is the fact that the improvements are incomplete. If you were to fall into default, (and as unlikely as that may be in your case, still a lender must consider that outcome, don't you think?) the lender would be stuck with a work-in-progress to sell. It may be very hard to convince a buyer to buy the place "on the come," so to speak. So, having money in escrow to hire someone to complete the work may be the best way to solve your need (or desire?) to refinance and the lender’s need to know that they have a way to work out any problem that may arise. As an alternative, you might take out a construction loan, if you can obtain one in this market considering your current financial condition, what ever it may be.

It may be in your best interest to wait until you complete the work before refinancing. While rates may rise, there is certainly no guaranty that that will be the case. On the other hand, a clean deal may result in lower interest payments; less money borrowed (by the escrow amount, if no other,) and lower monthly payments.

As a final note, you seem to be operating on 2006 think, where borrowing every cent you can makes sense. That is very much "so last year"! What will happen if you have a financial reversal? Up to the hilt in debt, with a bathroom more than you claim to really need, you may find that you have joined the group of poster children for a society that borrowed to the max only to discover that someone lowered the workable max and that your payments exceed you ability by an amount that results in a disaster.

Think about it and pace yourself accordingly.

Best wishes with your new home.

Bill Holt
0 votes Thank Flag Link Sat Jul 4, 2009
Sounds like you are not intending to finish the bathroom, no they are not being unreasonable.
0 votes Thank Flag Link Sat Jul 4, 2009
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