Property Q&A in Sacramento>Question Details

Cj, Home Buyer in Sacramento, CA

I want to buy a house in Northern California using an FHA loan. The house doe NOT qualify for the loan because the attached garage was converted

Asked by Cj, Sacramento, CA Wed Feb 10, 2010

into an extra room with a bath. So, I said I would be willing to open the garage portion back up (keeping the bathroom) and 'they' said it still will not pass. Any reason why?

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In the past twenty years of touring homes with buyers, think I have seen hundreds of garage conversions. The overwhelming majority of them made the home LESS salable, even those that were done with permits and in a workmanlike manner. Anyone considering converting an existing attached garage into a bedroom or a family room should have their head examined. In my opinion It is one of the worst "home improvement" investments a homeowner can make.
0 votes Thank Flag Link Fri Jun 24, 2011
Jim Walker, Real Estate Pro in Carmichael, CA
Per Laura @ Santa Ana HOCFHA loan: Garage conversions permitted or done in a work like manner are acceptable. Property must have adequate parking and comply with zoning regulations. Garage door must be removed or the garage must be converted back to its original use, unless the appraiser indicates the garage has been completely finished with drywall up, and garage door is not being used as the wall. Converted garage must be finished and meet HUD’S minimum property standards regardless if value is given. Value should be shown on a separate line item (garage conversion) and not be included in the subjects GLA. There should be at least 1 like comparable sale. No across the board adjustment allowed.
0 votes Thank Flag Link Mon Jun 20, 2011
If you can try a different type of loan and see if it flies, although it may not still. Plus will the seller hang in there if you start over with a new loan? If the space is unpermitted, that is a red flag for most lenders these days.
Sorry to hear of your troubles, this is a good reminder that the house has to "qualify" for the loan too.

Good luck
0 votes Thank Flag Link Wed Feb 10, 2010
This is FHA financing, dont let FBI knocks on your door (and they are watching!) and remember E&O does not cover fraud! Its your brokers and your liability! Take a rest!
0 votes Thank Flag Link Wed Feb 10, 2010
CJ -

It really depends on the appraiser you get. I had one with a non-permitted garage fly through with no issues on FHA and then another that they stopped it dead in the tracks. Both were done with "good workmanship". Both about the same age/time period but one appraiser called it out on the appraisal and the other did not (and did not include that room in the square footage.)

CJ : )
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0 votes Thank Flag Link Wed Feb 10, 2010
I had a similar issue for my clients, although, the property is located in Anaheim, CA.

The reason for our transaction was adhering to the City of Anaheim's zoning and building code. I called the building and planning department and the issue was related to exponential population growth in the neighborhood with insufficient support of infrastructure for water & sewer. So, the City required the removal of the addition "until" the City has the funds allocated to improve the infrastructure.

So my suggestion for you is to contact the local city and planning department, provide the property address, describe the situation and they will tell you what you can and can not do. Based on the City's comments, then you decide whether the subject property is worh pursuing.

You can NOT get around local city zoning and building codes. So it doesn't matter what the Seller, the Appraiser, or FHA would agree, disagree, pass, or not pass.

I hope the information helps.
0 votes Thank Flag Link Wed Feb 10, 2010
My personal belief is that it's an individual appraisers interpretation that set the converted garage as something that would not be accepted.

Your buyer's agent should be able to bring their negotiation skills to the table on this one. If you still want to pursue this home, then submit the offer under an FHA 203K loan. As you can't pay for any modifications prior to owning the home, the seller won't pay for them, and FHA will not fund the loan without the modifications, it would normally appear that you're between a rock and a hard place. The 203K loan allows the appraisal to be completed assuming all repairs are made and the cost of those repairs are in your mortgage. That's the only way I know how to get around this.

As for the reason why, again? Beats me, as when I read their guidelines, I don't see it listed as any hard fast rule....unless the value cannot be justified with the converted garage.
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0 votes Thank Flag Link Wed Feb 10, 2010
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