Home Buying in Cordova>Question Details

Ruth Jones, Other/Just Looking in Cordova, TN

Financing a short sale

Asked by Ruth Jones, Cordova, TN Thu Apr 30, 2009

I am currently trying to purchase a home well below market value. The plan was to put down 50% and finance the rest. I have excellent credit. But, since the home needs repairs the lenders do not want to finance a loan until the repairs are complete if their appraisers suggest this. This seems unusual due to the loan to value ratio involved. Is this the case for all lenders? Any suggestions?

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You may want to reconsider putting so much money down...why tie up so much capital on a home that needs work? I would consider an FHA 203(k) Home renovation loan with 3.5% down (or a little more) or look for a Fannie Mae (Homepath) property offering a Fannie Mae Homestyle Renovation Loan...How much you put down may change depending on your FICO score...but I would not recommend doing 50% down. Good luck. Tom Hinz thinz@apexgroupus.com http://www.shortsaletosell.com
0 votes Thank Flag Link Wed Apr 29, 2015
Hi Ruth,

You have just hit into a horrible catch 22. The sellers have no money, haven't done the routine maintenance and now the house needs repairs to qualify for either an FHA or VA loan. Since you are putting down a considerable amount - why aren't you going on a conventional loan? Repairs would not be mandated as long as the house in habitable and appraises for or better than the loan amount.

10 to 15 years ago, all we did was either FHA or VA loans - unless you were buying the huge house, or had 20% to put down. Then regulations changed. It was easier for a lender to do conventional with only 10%, 5% or even no money down. If the house was a dump - you could get 10% on top (110%) to fix it up. Along the way, those loans were abused and people were getting them and pocketing the extra cash. To add salt to the wound, some would get them (or several in one day) and never make the first payment.

If your purchase is through the primary mortgage company ( not a secondary company through the bond market or the second mortgage company) - they might finance you direct. In those cases though, be aware you are buying "as is, where is".

Good luck Ruth, a true bargain is sometimes a little work!

Jo
0 votes Thank Flag Link Fri May 1, 2009
I do have an agent that specializes in short sales and foreclosures. She has explained how long the process can be and all the steps that are required.

I'm prequalified, but just a bit surprised to hear some lenders are requiring repairs prior to closing in some instances based on their appraiser's reports. This may not be true in all cases. My realtor did tell me about the 203K FHA loan, but I hear it is at a slightly higher interest rate than normal loans. Another option is an all cash transaction at closing. But, I am so conservative with money and the interest rates are so low now, this does not seem to be the best option.

I just needed to understand if the repair clause prior to closing is the norm now or if this is rare. It seems the banks have gone from one extreme (giving anyone a loan at up to 110% of the home's value, to very tight restrictions for qualified buyers at a much lower loan ratio).
0 votes Thank Flag Link Fri May 1, 2009
Ruth-

You have 2 options. You can either do a HomeStyle Renovation loan or a 203k FHA loan. Both of these products factor the "after repair" value of the home and not the purchase price itself. Both loans are 30-year permanent loans so there is no need to refinance after the work is done. You just have one closing and one set of closing costs.

If you have any questions about them, you are welcome to contact me.
Luke Allison
Bank of America Home Loans
828-777-8828
luke.allison@bankofamerica.com
0 votes Thank Flag Link Fri May 1, 2009
First question to you is: Do you have a realtor representing you in this transaction? If not, I stongly urge you to hire a realtor that has short sale experience and understands the process completely. It will benefit you in the long run.

Having said that, to answer your specific question, this will depend upon they TYPE of loan you have applied for/been approved for. If this is a short sale, (as you indicated in the opening statement) then chances are the seller has no funds to put towards any type of repairs. The home is then being sold "AS IS". The current mortgage holder needs to decide A) will they accept the offer price; 2) if there are contingencies placed in the P&S will they accept any, all or none; 3) will they allow ANY repairs to be made and if so, up to what maximum amount?

Normally, they don't approve repair funding since they are already taking a loss on the original payoff to what the short sale acceptance price is. You, as the buyer, need to discuss with your lender that the home you are wanting to purchase is a short sale, is being sold "As Is" and what type of programs can this lender offer you that will not include requiring repairs to be made. Be aware as well, if you are not familiar with 'short sales', buyers must be very patient. It can take anywhere from 45 days to 180 days (some even longer) before the bank approves, rejects, counters, accepts and closes. This is not a quick process, so, again, be prepared to wait.
Hope this information helps.
Tina Evans, Broker
Luna Realty Group
Smithville TN
Web Reference: http://tinaevans.net
0 votes Thank Flag Link Fri May 1, 2009
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