Hello, I want to buy a home that is in short sale. This home has mold damage in the basement. What is my best loan option? 203K? Streamline 203k?

Asked by Tony, Indiana Fri Jul 30, 2010

This home has mold damage in the basement that will cost around $8,000 to gut the intire basement. I have $30K to play with. This home is in short sale. I can place a bid and if they accept my offer the morgage company requires the "problem" to be fixed before closing. This is normal fixed rate loan that I have been pre approved for. But if I win the bid then pay 8k to fix the problem and something happens that I don't get the property, I am out the 8k. I say this because I heard that in short sales all kinds of things can happen and the buyer might not end up getting the property even if they have work done prior to closeing. So what would be the best option to protect my money? This 203k that I am hearing about? Or 203k Streamline? Or something else I dont know about with loans and short sales? I am also looking for someone in my area that can help with this.
Thank you in advance. And I will probably respond quickly.

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Paul Welden, Other Pro, Tempe, AZ
Wed Aug 11, 2010
HI Tony,

NEVER pay money to repair a property prior to you actually owning it!

A "normal" FHA loan is called an FHA 203(b). This type of mortgage loan requires that all noted safety hazzards be corrected prior to you owning the home. However, you can always use an FHA 203(k) loan which allows you to purchase the property in its current AS-IS condition and include in your mortgage the cost to rehab/improve the property. The rehab/improvements are actually done AFTER you own the home. There are 2 versions of the FHA 203(k) loan - Standard/Rehab and the Streamline. We will show you where you can obtain for FREE all of the FHA 203(k) lenders in your area. So, call us and make certain you have internet access when you do.

Contractor Directory for the FHA 203(k) loan program
(480) 463-4663
Web Reference:  http://203KContractors.com
1 vote
Helen Centor…, Agent, Scarsdale, NY
Fri May 16, 2014
In New York a house cannot be sold with mold damage unless remediation is done.by the buyer prior to closing
0 votes
, ,
Tue Sep 21, 2010

I'm sorry you didn't receive the call back from the company rep you called but if you have any questions about one of these loans now or in the future, I'm local and depending where you live, my office may not be a very long drive away.

I hope your needs have been met but if they're not, reach out and we'll get you pointed in the right direction.
Web Reference:  http://robweber.com
0 votes
Tony, Home Buyer, Indiana
Fri Jul 30, 2010

I'll try answering a few things that were raised in your answers.

My wife and I have been searching all day for someone that offers 203k loans. We have only found one and it was Wells Fargo. I left a message but have not heard back yet.

I did asked the loan officer I am currently preapproved with if there was any way to escrow the repairs so that I could do them after closeing. He said absolutly not, It has to be fixed before closing. So thats out for now until I can ask some other lenders.

This is a wonderful house we have been looking at for some time now just waiting for it to go on sale. I would be getting a great deal on it even if I have to fix the problems.

I had a plumber come out and look at it today. It needs a sump pump installed. It never had one. The reason he said was because it sit on top of a GIANT hill so there wasnt much water to begin with. But he said installing a sump pump would be perfect to remove the water. He estimated this around $500.

I did have a great company come out and do a full estimate on the mold removal. Thats how I know it will be 8k to gut the intire basement and get rid of the mold.

I own my current home. So I want to move into the new house then sell my old one and pay off the loan. My wife and I have great credit. I am hopeing this will be some kind of asset to us during this process.
0 votes
Stacy Carter, Agent, Roswell, GA
Fri Jul 30, 2010
The 203K Streamline is in essence a renovation loan offered through FHA, however, the monies are held in escrow and the work is completely with 90 days AFTER the sale of the home.

I would assume they want the mold repair made before closing because mold is considered a health risk. And with this issue, you could be at a crossroads. Unless you can get around the loan requirement for the timing of the repair, the only way to proceed is to have the seller make the repair out of their funds. And I realize that may not be possible, in which case, we have a stalemate.

Talk this through with an FHA/203K loan specialist to see if they have any ideas.

Stacy Carter
Associate Broker
Better Homes & Gardens Real Estate Metro Brokers
0 votes
Scott Godzyk, Agent, Manchester, NH
Fri Jul 30, 2010
Tony you definatelt do not want to complete any work that you have to pay for until you own the property. The risk is too great in a short sale. A short sale is never completely accepted until you are all signed and handed the keys.

The 203k would be a good way to go, ask you loan officer for guidance. they should be able to inform you of you ooptions. th eother option is to ask if you can put the 8k in escrow, so when you close the bank knows that money is there to complete the mold.

Also you didnt state anything about the price you are paying, hopfully you are getting a good enough deal to make it worth while. The mold shoudl have been tested by an expert as well as teh other parts of teh house to make sure the spores are not through out the house,

Good luck with your purchase

Please see my blog with more great tips and advice on buying a short sale.
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