Home Buying in 92374>Question Details

Eileen, Home Buyer in 90805

Will FHA approve a loan on a home that has a non permitted converted garage?? Garage has been converted to a two bedroom home or "guest home"

Asked by Eileen, 90805 Thu Mar 7, 2013

Work on converted garage looks great... Outside don't look like a garage at all!! Bad thing is, I pulled permits, and its not permitted. The home is being sold as is, and its a flipped property. Seller will not do termite or any repairs.

Help the community by answering this question:


Hi Eileen,

I do not see FHA giving approval for the financing on the home with an un-permitted addition. While the construction may look sound and the work completed by a licensed Contractor, it was not permitted. I recommend that you speak with your Lender on this matter right away prior to submitting an offer. Should you be in your designated inspection perid of escrow (typically within 17 days after offer acceptance, unless otherwise agreed to in writing), then you will need to speak with your Lender quickly. Should your Lender come back with a no on loan approval, you will have time to cancel escrow and get your good faith deposit back. Good luck!

Warmest Regards,

0 votes Thank Flag Link Thu Mar 7, 2013
Its funny that all of these agents are giving the wrong information. FHA does allow for Unpermitted additions as long as they are done in a workmanship like manner. For the square footage to receive value you need an appraiser that is familiar with that guideline and a bank that does not have guidelines preventing using the square footage for value such as Provident Bank or PRMG who both allow the unpermitted square footage. If you agent or bank are telling you this is wrong, find an new one.
2 votes Thank Flag Link Sun Mar 15, 2015
100% Agreed, and yes it is funny many agents don't know the FHA guidelines, however they proceed to give the wrong advice anyway. I recently closed a FHA transaction with two unpermitted studio apartments in the back yard. It can be done as long as the unpermitted space is done in a workmanlike manner as JJones said. In addition to that the appraiser will probably not include the unpermitted space as square footage on the report.
Flag Tue Oct 20, 2015
This home is most likely not meet for FHA funding condition.

If you are set on it you may need to try and get approval for a conventional loan.

FHA has pretty strict funding conditions, unpermitted additions are a No No.

Best Of Luck To You.

Kawain Payne, Realtor
1 vote Thank Flag Link Mon Apr 1, 2013
You are definitely fighting an uphill battle with non-permitted space. It puts up a bunch of red flags with FHA. Looking for anothe property may be best option.
1 vote Thank Flag Link Sun Mar 31, 2013
Nobody has said anything about Planning, Code Enforcement, Tax and insurance regulations. On a bad day if someone complains to Planning, Code Enforcement can come out and inspect the property. IF violations are found, the homeowner is on the hook for the cost of compliance. Also, the insurance company usually only covers what is on public record. If something catastrophic happens to the property, insurance will not cover the improvements and SQFT that are not on record. Last there is the possibility of the tax man. Your property tax is based on whats on record. If the addition is permitted, it becomes Public Record and usually your property tax will increase. So technically they can get ya for back tax's on the property and also for unreported income if you've created a illegal rental unit. I've only seen this happen once, in one county is California. They went after the owner, who was doing this for years. When it was all said and done, they took the property because the owner could not pay the fines, penalties and interest. I KNOW THIS HAS NOTHING TO DO WITH FHA APPROVAL BUT IT HAS BEARING ON the topic of UN-permitted work
0 votes Thank Flag Link Mon Feb 29, 2016
Un permitted work is poor quality work regardless of the appearance. Remember permits ensure the "minimum" in building safety and are in place to protect the consumer from shoddy workmanship and unsafe building practices.

A question about FHA and funding takes a back seat to the safety of your family.
0 votes Thank Flag Link Sun Jun 14, 2015
I'm sure you bought your house already but for anyone else wondering, Yes the un-permitted bathroom will be fine. You need to speak to a Mortgage Broker/Banker that is actually familiar with FHA guidelines. If you notice below all the Mortgage Officers say yes, only the real estate agents are saying no. I'm not sure why they are chiming in on a loan related question, they need to leave that to the Loan Officer. The FHA guidelines specifically state that unpermitted square footage is OK and they might even let you use it in the gross living area calculation on the appraisal. If the workmanship is bad though, then you have an issue. Like stated below the work must be done in a "workmanship like manner". Just make sure that when the appraisal is ordered through the AMC that you personally talk to the appraiser and ask him if he is familiar with this process. If he is not, call the AMC and have them get you another appraiser. In a worst case scenario the lender (Not FHA) will pull the unpermitted square footage out of the valuation (Appraised price).
0 votes Thank Flag Link Sat Jun 13, 2015
My experience is NO! if its unpermitted and no doesn't have a garage of any kind, its a no-go. Find something else.
0 votes Thank Flag Link Thu May 2, 2013
It is possible to get the converted garage permitted after the fact. If this is a home you love, it may be worth talking to the owner about going through that process. If it was built using sound construction, it may not be all that hard to do. However, if you can find something else to buy, do it.
Flag Fri Sep 5, 2014
Actually if the work is done in a 'professional' manner, you may be okay.
However, the appraiser will be unable to give it any value.
As long as the appraiser does not call for any health or safety issues for this property, then you should be okay.
Appraiser may deduct for 'cost to cure' in regard to converting back to garage.
0 votes Thank Flag Link Sun Mar 10, 2013
You're amazing!@#! Out of all these folks, you're the only one that knows what she's talking about. If we listened to 9 out of 10 of them, they'd have you tearing
down the house to make FHA happy. Thanks for the wisdom!
Flag Thu Apr 9, 2015
Hi Eileen,
The answer is a big NO!
Nothing but grief....

Jory Blake
Web Reference: http://www.JoryBlake.com
0 votes Thank Flag Link Thu Mar 7, 2013

Typically an FHA appraiser will call this out and you will have two options; 1) Tear out the walls and convert the garage back into a garage while you're in escrow (you may be able to request this of the seller depending on how motivated the seller is to sell the home and how long it's been on the market) or 2) Speak with your lender about possibly going with conventional financing. Typically while a conventional appraiser will make note of the conversion, they will not make it a condition as being needed to be addressed in order to fund the loan. The underwriter on the conventional loan, however, may or may not take issue with the conversion depending on a number of factors; i.e. amount of down payment, FICO scores, if there is plumbing (bathroom), etc. Typically the more risk involved in issuing a loan (low down payment, lower FICOs, etc.) will give the conventional underwriter more cause to deny the loan.

Also on a flip going with an FHA loan, if the home has not been "seasoned" - that is, the seller has not owned it for more than 90 days, your lender will require two appraisals on it; one from your lender and one on the seller's side. And should one of the appraisals come in for less value than the other, your lender will lean on the lower appraisal to base your loan approval on. Some flip sellers are agreeable to this, while others aren't - which is why a lot of times on flips you'll notice that sellers will only accept cash or conventional financing only.

Typically when we see garage conversions they have not been permitted and thus can cause problems when it comes time to qualify for an FHA loan.

Hope this helps,

0 votes Thank Flag Link Thu Mar 7, 2013
You should be very careful buying such a property. The town or county might not say anything anytime soon, but could come in and force you, as the new owner, to remove all the unpermited stuff and take it back to a garage. I would be cautious, I know of many such homes where that happened. Someday you will get a permit for something and someone will notice or someone will tel. It happens!
0 votes Thank Flag Link Thu Mar 7, 2013
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