To answer your question I'll need to assume 2 things. First, that a pest inspection has already been done on the property because you know about the section 1 work. Two, that you have yet to make an offer.
When writing an offer on the property it is always recommended that buyer's do all necessary inspections to satisfy your knowledge about the condition of the property before removing your contingencies. The purchase contract provides for these inspections and contingency timelines.
Since this is a short sale and the owners most likely have no funds for repairing section 1 work themselves I would recommend leaving it off the contract. If you include the Pest report in the contract then your lender will want to see it. Second, ask your agent if it's been mention in the MLS, because my next concern would be that the appraiser would make note of it in their report. I can't imagine that $3,000's worth of work would be noticeable to an appraiser.
Lastly, FHA financing allows you to get in with 3.5% down but if you could come up with another 1.5% for a total of 5% you could go with a conventional loan and for go the issues with your FHA loan. Talk to your lender for more info, this has helped many of my clients get in and save money as well!
In this case you would only pay for the repairs after you removed your finance contingency because your lender gave you their blessings for loan approval. Doing these types of minor repairs is common,
I had an issue with a water heater that that was marked BROKEN in bold letters. The appraiser made note of it in the appraisal so the lender wanted it repaired before they would fund the loan. The repair was made and my clients are now home owners.
Please note that up until the sale is recorded the property can still be foreclosed on and you could lose the money spent and the opportunity to purchase the property all together. Timing and a good agent are both very important in today's real estate market, good luck in your home buying efforts. Now is a great time to buy!
Always the Best,
If there is already a pest inspection, you may not have to clear the section 1 work if it's not written in your contract. One other way for the lender to find out is that it might be in the sellers disclsoures. But let's take a worse case scenario and say your lender knows there is section 1 work to be done.
In that event, you won't pay for any work until you have a ratified contract. Meaning the lender has accepted your offer. Once they have done that, you will get an appraisal and then the bank will submit your loan to the underwriter for reveiw. At that time your lender will come back and say you need to clear all section 1 work along with any other conditions like updated bank statements or paystubs....
Once you have satisfied all the requirements and there are no other conditions from the underwriter, you should be home free. The most important thing is for your agent and your lender to have good communication and that communication should be prior to you writing an offer.
Note: Make sure you talk with your mortgage professional so you are on the same page before you do anything. They will be the one who should help guide you through the loan process.
Best of luck.
If you have any other questions or need to discuss strategy, feel free to ask.
From my experience with 203k loans, the best advice is to use a lender that offers assistance via third party with 203k processing.
This shortens the closing time by weeks. Try http://www.cfs-mortgage.com/203k for more information.
It is misnomer that FHA requires section 1 work completed. It used to be that way but not for at least 10 years.
FHA is not that difficult anymore. The home needs to be safe, livable and Structurally sound but all of this is only done be looking. FHA does not require inspections. When you write your offer as it has been mentioned, do not put in specific inspections. Paragraph .14 of the California Association of Realtors Contract allows still allows inspections without specific mention.
If the damage is evident you might just do a quick paint job. The FHA appraiser does not poke around. They only look with their eyes. Your agent should be present and they can avoid some locations or move them through them quickly.
If you do not have an agent or you do not have confidence in the agent please feel free to call me at 877-Lee -Sells.
Only if you are very, very confident the seller will more forward regardless of what shenanigan the bank or investor may pull, you may want to determine if this is money you can afford to lose. Some realize that to acquire a great deal, a little risk may be involved.
Be aware, this situation occurs more frequently than one would think. Potential buyers DO invest in the minor repairs needed to satisfy lender requirements because they are highly confident all other obstacles have been removed. By the way, if you are looking for GUARANTEES you may be shopping in the wrong store.