Brad,

So FHA 203K is probably your best choice, IF, the total transaction still makes sense.

One thing Paul started to mention is the "downside" to the 203K. Probably a interest rate boost of 1/2 to 1%. Also typically higher "junk" fees, by one to two points. Finally the timing, even for a "streamlined" 203K can be 60 days or more to closing. (We just closed a regular FHA in 8 days for comparison.)

Also, there may be a restriction to two contractors with the streamlined 203K. (There was no restriction like this on the regular one.) And, the renovations are limited to $35,000 with the streamlined 203K.

I also agree with Paul that the $30,000 sounds like a lot for the repairs you mentioned. Paul's numbers for furnace and roof are inline with what we see here in Michigan.

As far as agency, Paul is again spot-on. Many "part-time buyer agents" get confused about the topic. Paul is a nationally recognized expert.

And finally, in contrast to what many "part-time buyer agents" might tell you, you can often negotiate repair concessions with lenders. It just takes negotiation. We've negotiated lender concessions for plumbing, sewer lines, roof issues, radon, and others, just in the last year. It isn't a sure thing, but it certainly is not impossible either.

Good luck with the effort!

Jon Boyd
Broker/Manager
The Home Buyer's Agent of Ann Arbor

Hi Brad,

I don't know if you have done anything yet but I deal with this type of situation all of the time. My advice would be to ask for money back from the bank. I do this all of the time for my clients. It's a bank and they are not going to hire contractors to make repairs. They just want to sell the home to the highest bidder. When dealing with banks you need an aggressive buyer agent who is not afraid of the bank or asset manager. I talk about this a lot on Trulia.

Feel free to contact me with any further questions.

Renee Porsia
Associate Broker
RE/MAX ACTION REALTY
(215) 669-0589 Direct
(215) 358-1100 Office Ask for Renee
http://www.reneeporsia.com

In as much as the question has been answered in multiple versions a number of times I won't do it again. I will though make another comment on the agency issue.

A buyer's agent can proactively look for information or do analysis to obtain information for the express purpose of giving the buyer an advantage over the seller - a seller's agent or a dual agent can not.

If the seller gives the seller's agent 'confidential' information (eg. they are going into forclosure) they cannot as a seller's agent or dual agent give that information to the potential buyer. Even though the seller sees that as 'confidential' the buyer's agent can (if they can discover it) give that information to the buyer. A buyer's agent might obtain that information quite legitimately through a number of public sources.

I could go on and on with examples but those illustrate the point. A buyer's agent is nothing like and does not work under the limitations of a dual agent.

Getting back on topic... Vicky (first poster) brought up a good point (pasted at bottom of this post).

I had a client who became my client AFTER they suffered a very terrible experience with someone else trying to do a loan they had no business doing... A loan officer at another company told my client to fix up the property so they could close on it. The buyer put in SIX THOUSAND (yes, that's $6,000) in repairs on a property they DID NOT OWN. The property was not in habitable condition originally. The buyer was convinced that they had to do this work to close on this home. In the end the seller sold the property to someone else and the buyer was out his 6K. After this horrible incident, they went looking for someone (they eventually found me) and they're now house hunting again with the proper financing.

I tell everyone looking to buy fixer uppers my story because I'm sure this won't be the first or last time this will happen. Educating through awareness will help minimize instances of stories like this.

Caveat Emptor!

-------
Originally posted by Vicky:
Oh, and don't (as in DO NOT) do more than $100 of repairs to any property that you don't own; and that's assuming you've got $100 to throw away should something wacky happen... like the seller not really owning the property so they can't sell it to you. That happened on one of my contracts.
Web Reference: http://www.vickychrisner.com

If there are moderators, please cap this thread. Brad's original question has already been answered in great detail.

Brad: This part probably doesn't interest you at all but I thought that I would make one final comment on Dual versus Buyer agency. All of what I said previously applies. Mr. Howard seems uninformed about advocacy. The CIS specifically says one side should not be given an advantage over the other ON THE BASIS OF CONFIDENTIAL INFORMATION DISCLOSED TO THE OTHER PARTY. While Mr. Howard proposes to inform his clients of confidential information gained about the other side, except for a slip of the lip by the other side, don't you think they'd keep their confidential information confidential? (That 's what I already said.) Other than confidentiality, a dual agent can assist each party in determining and expressing the deal that they consider best for themselves. I call that advocating a position, no matter what Mr. Howard may call it.

On the matter of advantage, it is very hard to determine if one side is disadvantaged by any term or condition of a contract. If a seller accepts an offer of $15,000 less for the property (as you have suggested in this case,) is he "disadvantaged" when, without that reduction, there would be no deal? Conversely, would the buyer be disadvantaged by accepting the responsibility for the CO repairs? (I’d say that he might, but only if he did not realize that he was doing so under the terms of the contract. That's why ANY agent should be sure he knew about this responsibility.) I'd hate to face an adversarial attorney and try to explain how a full meeting of the minds had occurred when the buyer was unaware of the full meaning of the terms.

Mr. Howard also somehow feels that he can get some advantage that the seller is unwilling to make without a buyer's agent twisting arms. I'd like to employ him on some of my recalcitrant sellers myself!

No agent, buyer's, dual or sellers can conceal known material facts. That would certainly be opening themselves to charges of fraud. Most Realtors have enough to do just being honest brokers without defending themselves from such charges. In fact, the "Honest Broker" tag should be one that ALL Realtors aspire to and which, upon discovery of anything else, they should heavily condem.

TRY AN FHA 203K LOAN. THESE CAN WORK WHERE REPAIRS ARE NEEDED BUT YOU NEED A LENDER WHO IS AN EXPERT IN THIS TYPE LOAN

the bank maybe willing to make the repairs added to the price and assumming that it'll appraisal for the amount... There's a chance that a FHA 203(k) loan maybe available to buy the property. You can have your repairs added to the price of the property and some assistance with inspections on the progress and work done right...


Don Smith
C-21 Goodyear-Green

Brad, you should read the consumer information statement as it pertains to Buyer agency and Dual Agency: Mr Holt appears to have an unusual opinion of what it means to be an advocate.

-----------Disclosed Dual Agent -------------
A disclosed dual agent WORKS FOR BOTH THE BUYER AND THE SELLER. To work as a dual agent, a firm must first obtain the informed written consent of the buyer and the seller. Therefore, before acting as a disclosed dual agent, brokerage firms must make written disclosure to both parties. Disclosed dual agency is most likely to occur when a licensee with a real estate firm working as a buyer's agent shows the buyer properties owned by sellers for whom that firm is also working as a seller's agent or subagent.

A real estate licensee working as a disclosed dual agent must carefully explain to each party that, in addition to working as their agent, their firm will also work as the agent for the other party. They must also explain what effect their working as a disclosed dual agent will have on the fiduciary duties their firm owes to the buyer and to the seller. When working as a disclosed dual agent, a brokerage firm must have the express permission of a party prior to disclosing confidential information to the other party. Such information includes the highest price a buyer can afford to pay and the lowest price a seller will accept and the parties' motivation to buy or sell. Remember, a brokerage firm acting as a disclosed dual agent will not be able to put one party's interests ahead of those of the other party and cannot advise or counsel either party on how to gain an advantage at the expense of the other party on the basis of confidential information obtained from or about the other party.

-------------------Buyer's Agent----------------
A buyer's agent WORKS ONLY FOR THE BUYER. A buyer's agent has fiduciary duties to the buyer which include reasonable care, undivided loyalty, confidentiality and full disclosure. However, in dealing with sellers a buyer's agent must act honestly. In dealing with both parties, a buyer's agent may not make any misrepresentations on matters material to the transaction, such as the buyer's financial ability to pay, and must disclose defects of a material nature affecting the physical condition of the property which a reasonable inspection by the licensee would disclose.
================================
Carefully read the last sentence regarding dual agency and contrast and compare with the first sentence regarding Buyer's Agent.

Some of what we do as buyer agents can be done by dual agents. A dual agent CANNOT, however, advocate for a buyer in a way that will disadvantage a seller, but that is exactly the kind of thing I , and other exclusive buyer agents, do on a routine basis. If I have, or can obtain, information the seller would rather a buyer not know because it would hurt the seller's bargaining position I will provide it to the buyer. Further, I'll help the buyer by advising them how the information is useful. I'll even research their agents history to determine how experienced they are. The one thing I will not do it be dishonest.

Dual agents have to be fair but they cannot help you in ways that will disadvantage either party over the other. Buyer agents are obligated to help you - especially when that entails disadvantaging the seller. That is what advocacy in all areas of the transaction means. It is what 'undivided loyalty' in the first sentence of the state's Buyer's Agent definition is all about. It is what every consumer should expect when they hire an agent.

Paul Howard, Broker
NJhomeBuyer.com Realty
Cherry Hill NJ 08002
856-488-8444

MEMBER: National Association of Exclusive Buyer Agents http://www.naeba.org

Usually the rule of thumb is you do not ask the bank to fix anything. Ask for the full amount to be placed in escrow at closing where you can hire and watch over the contractor, they in turn are paid out of proceeds of the escrow account. Your bank shold agree with the escrow, you will need verified bids form contractors and supply everything to your lender if they ask,. do not ask the bank to reduce the price unless you have 30k in cash to be able to pay for it, if you dont reducing the price isnt going to pay for the work, the banks rarely pay to fix anything and if they do you want it done right, not cheaply and quick.

Brad: As you probably have deduced, getting into the foreclosure rehab business is difficult and may, in many cases, may lead to missing better opportunities elsewhere. Since I got a "thumbs up" on my previous answer, I'll leave it go with what I said.

There is however, an issue that seems to have been misreported. Dual agency does not mean that the agent is merely a conduit of offers back and forth. In the NJ Consumer Information Statement (CIS,) which must be offered to a prospective client on first meeting, certain "must" and "must nots" are outlined. There is no "must not advocate " a clients position. In fact, the CIS states that a fiduciary responsibility is owed to both sides and that any effect of the dual agency on those duties MUST be explained.

The Dual Agency can only exist when written consent of both parties is obtained. A Dual Agent cannot reveal any confidential information given to him/her by one party to the other party. (In the case of a buyer's agent, gaining confidential information about the seller that was not public knowledge would be extremely difficult without an invasion of privacy, don't you think? If so, then there really is no confidential information to be gained from a buyer's agent and one may ask, what has a client lost in this regard by using a dual agent?)

Finally, a dual agent is forbidden to put one party's interest ABOVE the other or advise or counsel one party to gain advantage over the other on the basis of confidential information obtained from or about the other party.

It would seem to me that a dual agent could advocate strongly for each party’s position. In this particular case, advocating strongly that, without a concession from the seller, no mortgage will be obtained by the buyer seems not only possible but the best course of action to take for all concerned. Conversely, advocating that the seller has information that they rely upon that the property is worth what they are asking also seems reasonable.

The dual agent sometimes has an advantage that separate agents really cannot get and that is how truly emphatic the demands of each side are. The dual agent can, upon occasion, urge continued negotiation without revealing confidences in cases where an agent for one side, seeing the counteroffer, might assume that there was no room left for negotiation. Having the confidence of both sides, he might suggest alternatives that, coming as an offer from the other side, might be rejected without full consideration of the practicality of the alternative.

Agents for one side sometimes get carried away, defending their client rights or attempting to gain the maximum advantage or the maximum in concessions (one agent specializing in buyer's-agency-only stated that they would be a “bulldog" for their clients.) Would this approach always yield better results than an agent who diligently tried to bring the parties to a meeting of the minds (the definition of a true contract)? My own answer is that there are many good and honest Realtors who, acting as dual agents, can and do bring exactly that meeting of the minds and do it well. Others may have a differing opinion but I hope that they will not use the argument that a dual agent would either do anything other than an honest job for both or who would do less of a job for either.

In our area, (arizona) the price of homes like this have been going down every quarter. I say wait a little longer and the bank may consider less of an offer because most people are not going to take on these kinds of problems. Sounds like a lot of issues. If it's been on the market a long time I say wait it out. Most people are not shopping for this kind of house during all the holiday whoo-ha. 20/30 days make a new offer??? We have empty homes on EVERY street in the area we are looking at. It's crazy.

At the risk of sending this thread down a path the poster didn't ask for, I need to make a clarification.

If a buyer is trying to buy a home and there are things in the home that an investor may not like, a lender may/will make the buyer/seller fix it before considering financing the property. We're in a market now where investors are looking for ANY reason to make lenders buy back loans. Whether it's my company (Wells Fargo) or another company, investors are cracking down. It's up to the lenders to carry out the wishes of the investors. Those who wish to ride the razorblade's edge can get cut doing so (I don't need to name the 300+ financing entities that are out of business to make my point).

To that end, Glen's client was probably trying to get standard financing through a conventional loan or a FHA loan. If they were getting a renovation loan, those conditions would then be added conditions after the appraiser identified other items needed to make the loan saleable or meet the minimum health and safety standards for the investor.

Remember, this isn't 2005-2007, lending has changed. Those who are looking to survive are hiking up their pants and tightening their belts.

The bottom line, if the property is a REO and it's not in good shape, it "may" need a Renovation loan. If it's not habitable, you'll definitely need one (or pay cash).

Happy house hunting!

Brad,
(Short Answer) Your options if you want to buy this property are to buy with cash or find a mortgage broker able to find you financing for a 203K mortgage.

(Long Answer) Do you own a home presently? Any equity? Is it currently on the market? Depending on those answers, you could possibly take the equity out of your current home (or perhaps a willing relative's home) and buy the home for cash. Once the issues are resolved in the home you purchase, you can fix those issues with the $30,000 less offer you hopefully obtained the home for and then mortgage the home and return the money to that relative or yourself.

If you don't own a home with enough equity or have a friend or relative close enough to lend you the money, I believe you will need to find a mortgage broker (who can shop several banks) that will be able to get you a 203K mortgage on a property such as you've described.

Some banks will not issue a mortgage if a home has mold, needs a roof (they usually want to see there are 2 yrs of useful life from a roofing contractor) or needs a furnace to produce heat and hot water. Wells Fargo recently made a buyer client of mine have asbestos removed from their basement pipes, have an abandoned above-ground oil tank removed from the property and have a roofing contractor estimate at least 2 yrs functionality in the roof before they would consider issuing a mortgage.

Lastly, with so many homes available, unless this home is a "steal," why would you pursue it?

I wanted to add one additional thing:

A 203K loan will allow you to finance a home that is in almost any condition as long as structural/foundation changes don't need to be made (at least with my company, other banks still doing these may have stricter guidelines). Mold, flooding, termites, etc, all can be fixed with a rehab loan.

I'm using a 203K to do a gut rehab currently. The home was ruined in the recent Hurricane that went through Texas. The insurance issue aside, they're basically custom building a new home. Quite a few properties that are "cash-only" are that way because numerous offers have been turned down due to pre-approvals that did NOT cover renovation financing. A Bank will rarely put their own funds into a home to sell it (exclusions typically in affluent areas) which means only buyers with Renovation Pre-Approvals or Cash can bid. My REO agents have actually put in their listings, "Cash or RENOVATION loans only or bid will not be considered. I'll leave the rest for a REO agent to add their two cents.

As for my expertise on the matter, I work heavily with REO agents in my area and in other areas of the country. This is the silver bullet to a buyer's financing problems (actually, investors too, email me for details--similar product to the 203K).

Brad, please get a Buyer's Agent. I attempted to purchase a REO property last week. However, the home needed a furnace and the bank would not budge. When they rejected my two offers, they indicated that they knew the home wouldn't pass an FHA inspection so they wouldn't sell me the house that's already been in foreclosure for over a year.

The most frustrating part about it was that I consented to the "Dual Agent" arrangement, despite the excellent advice I received from posting a question on this website, which was one of the biggest mistakes ever! I never felt as if she was "advocating" for me and, after reading answers to your question, I understand why. You certainly need someone to advocate for you!

By the way, the bank that gave me a pre-qualification for the mortgage also owned the home I wanted to purchase. They knew I could cover the total cost, but wanted a full-price offer even though the house needed work. Since they refused to budge, I walked. Unfortunately, a ton of additional houses will come on the market in and around my target area of Ann Arbor, Michigan. So, in the meantime, I'll continue to save money and wait until I find the right house for me!

Best wishes and happy house hunting!

Your question is a very good one and I will be happy to answer it for you.

First off, the loan program you are asking about (but probably don't realize it) is a 203K, a FHA Rehab loan for buyers intending on living in the property. Almost any improvement can be made to the home (either as a refinance or a purchase). As you said, for people with little capital, this is a FANTASTIC program for them. This program can be used on homes that don't have any deficiencies or homes that need a gut rehab. I noticed from this post that there were some inaccuracies so I'll clear that up. HUD sets very general guidelines and lenders in turn, add on additional requirements (per their-risk management tolerance). Some lenders prefer to originate these as separate loans, others prefer to do it as one loan and some restrict the amount of rehab you can do. While I can't speak for everyone, I'll say that 75% of the total cost should be able to be renovation costs (75k of work on a 25k property for instance) and there wouldn't be any ceiling other than the FHA ceiling in your county (In my county, it's 362k, in my deal in Cali, it's 362k and in my Texas deal, it's 271k) and those ceilings vary based on number of units.

This program isn't offered by most banks these days due to inadequate support for this product and the fact that it's much riskier than standard lending (we're lending on work that hasn't been done yet, it doesn't get much riskier than that).

As for the post about buying a non-fixer-upper. I'm not sure what your market is like but here, when a property comes on the market that doesn't need any work and is in really good shape, those are the properties that are getting multiple bidders on (at least that's what my agents tell me). I don't run into anyone these days who hasn't watched or heard of the Rehab shows on HGTV and they want to cash in on the rehab/buying fixer-upper craze.

If someone wants to buy a home with someone elses choices, that's great, there are a lot of homes out there that developers spent a lot of money to design. Then again, there are a lot of properties out there that need to be updated, why not fix it up the way you want with the upgrades you want? It's the next best thing to new construction! (that was actually a quote from a client).

Rob Weber
Renovation Specialist
312.274.4136
rob.weber@wellsfargo.com

Depending on the price of the home the FHA Rehad may not be an option at all. I do not think the repairs can exced 10% of the purchase. It may not be 10%, it's been a while since I represented someone doing this, but be assured this a limit. So if it is a 200K home my guess is you can use that approach.
If you go to a local bank and geta construction/rehab type loan you should be able to finance enough to do the repairs and purchase the home if the home is worth buying. Once the repairs are complete you can refinance to a permanent mortgage. Here is a scenario:

The home is purchased for 150K. Once the repairs are complete the appraiser says the home will be worth 225K. (You get the appraisal done up front with a list of repairs.) You secure loan. They come to the closing table with 150K and you purchase the home. Then they give you a draw for the other 30K as repairs are made. When complete you get your mortgage for 180K (80% Loan to value). You now have a home for 180K and 45K equity (on paper). If you can't make the numbers work in this fashion then the home is overpriced for a foreclosure!
There are always unforeseen expenses and slightly higher closing costs, because you have two closings in most cases, that is why I recommend having a 20% equity position when you are doing the budget.

If you have questions feel free to contact me directly.

PS: Buying a home with mold needs to be done with the utmost caution. You will have to disclose this issue forever and that could greatly hurt the resale value. That being said, there are a lot of home inspections that mention mold but it is not a "deadly" mold. So have it checked thoroughly.

It sounds like you need a Streamline FHA 203k Purchase loan. This product allows you to close on your home and finance in the loan up to $35k of repairs at the after impoved value of the home. If the house is uninhabitable due to the mold, and furnace up to 90 days of house pmts can also be financed. In this case if you are wanting the assistance of the bank I would suggest them lower the sale by $15K. Also most banks want a quick closing... with a 203k you close and then the repairs are complete within a maximum of 90 days.

If I can be of any assistance my credential and email address are listed.

Brad - consider a 203k. Roll the costs into the mortgage. Rates are close to regrular FHA rates. 6's nowadays. Get the repair estimates from the appraiser. Get a contractor if you like. Let me know if you need more info.

unless you are a seasoned professional I would stay away from anything with mold. Don't estimate yourself get a professional to give you a written estimate before you make an offer. I have found a lot of companies will do this in order to get the business if you buy.

Brad, the 203k streamline MIGHT be a good bet but I'm not so sure the underwriter will go for the mold issue. I'm not sure where you got $30,000 in repairs but roof and furnace in a typical house will not approach even 1/2 of that. How bad is the mold and do you have a real estimate for that? Since (as you said) your lender won't do the loan without the repairs a rehab type loan might be your only option. Keep in mind though that virtually all lenders jack up the rate on the ENTIRE mortgage by a half point or so on a rehab (including k streamline) so if at all possible you would be better off settling without financing the repair into the mortgage and getting separate financing for that after you settle. ( for more on 203k streamline see: http://www.hud.gov/offices/hsg/sfh/203k/203kslrp.cfm )

Mr Holt said, "Depending on how you arranged it, they may be dual agents, representing you equally with the bank. If so, have them advocate for you in negotiations. " Mr Holt knows that a dual agent CANNOT advocate for anyone. That is the nature of a dual agent - they cannot independently suggest anything that will advance the position of either party (buyer or seller) over the other. They can and must, however, present your position to the other side fairly - just not as an advocate for you. To have an advocate you MUST have a buyer's agent. A buyer's agent CANNOT be working for the company that the seller's agent is working for - otherwise they would be a dual agent.

An Exclusive Buyer's Agent (EBA) can be found at http://www.naeba.org.

Paul Howard, Broker
NJHomeBuyer.com Realty
Cherry Hill NJ 08002 http://www.HomeBuyerHomeSearch.com
MEMBER: naeba (National Association of Exclusive Buyer Agents)

Brad: Mexican standoff! You can't get a mortgage and the bank doesn't want to fix. In foreclosure situations, there's usually a Realtor involved. Depending on how you arranged it, they may be dual agents, representing you equally with the bank. If so, have them advocate for you in negotiations.

Unfortunately, the Mexican standoff likely will not be solved. You don't want to put $30,000 in a property you don't own. The bank doesn't want to put $30,000 in a property that they may not have sold. To be honest, it looks like there is no deal here.

The idea of an FHA or private mortgage loan with repair dollars seems the only viable way to solve the standoff. I believe that Wells Fargo does these kinds of loans but you have to qualify for the total amount of the loan. You also have to get the property to appraise, AFTER repairs, to be worth the amount of the mortgage and the down payment.

Finally, the property has to be a good deal for you with the additional cost of repairs.

I don’t believe that the 50-50% split of the repair costs will work. Only the bank has the money without a mortgage and they will NOT want to manage the repairs before the sale. It's not what banks normally do and in this market, there is even less incentive than usual. The bank was also probably diligent and already knows the rough cost of repairs and priced the property accordingly. They probably will not take $15,000 less. (That is the 50% split that you mention.)

The Town usually will allow you to "assume" CO violations. This means that you can buy the property as-is but, until the repairs for the CO are complete and approved, you can’t live there. If the CO repairs and the Mortgage Company's repairs don’t match, you may have even more cost then you have discovered to date.

Be very careful with this one. It's a specific example of why I tell anyone who will listen to work with a Realtor and find the best deal on the market. Foreclosures are not usually the best deal for the average homebuyer. It's a field whereto investor-developers or really experienced homebuilders have the best chance of success. Believe me, I've sold a lot of these types and bought one or two myself.

Best of luck.

Sure, you have options! The best option that comes to mind for your particular situation is the streamline version of an FHA rehab loan. This type of financing allows you to easily finance both the purchase and the repairs into a single, safe government loan. The repair funds will be escrowed at closing, and you'll be in control of the repairs - not the selling bank (which won't make repairs anyway). We're an FHA-approved lender active in New Jersey, and I'd be happy to talk this through with you. Feel free to call me: James Wheeler, 813-600-3428.

Consider a renovation loan if you can find a good one. I know Bank of America has a good reno loan. A bank is highly unlikely to do that much in repairs. You can put in an offer... what the heck. But, don't get your hopes up.

Oh, and don't (as in DO NOT) do more than $100 of repairs to any property that you don't own; and that's assuming you've got $100 to throw away should something wacky happen... like the seller not really owning the property so they can't sell it to you. That happened on one of my contracts.