If a house will not qualify for an FHA loan due to an illegal conversion can the buyer correct it before closing and still have it qualify for FHA?

Asked by The Webb Ii, Los Angeles, CA Mon Jun 14, 2010

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Daniel Magal…, Agent, Dana Point, CA
Mon Jun 14, 2010
All of the answers so far are great, check with lender, make sure it is okay with lender etc etc. However you as the bu.yer need to protect yourself and the seller. Technically you are making improvements to a property which is not yours. Just make sure all your "T's" are crossed and "i's" dotted. I have a personal experience where my buyer was helping the seller finish construction on an unfinished room; unfortunately my client did not get the house due to some circumstances beyond his control. Basically he lost out on all the work he performed. So ask a legal expert on this as well to help you with "what if" provisions.

Cheers to you!
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David - Appr…, , Maricopa, AZ
Mon Jun 14, 2010
That is a question you should be asking your lender.

If your lender agrees to it, and the seller agrees to it, and you agree to it, then I would think it would be ok.

There is nothing in FHA regulations, that I am aware of, to prevent it. But check with your lender to be sure. Your lender should also inform you what they would require appraisal wise (recertification, reconsideration, or new appraisal) depending on the conversion, needed corrections, and what effect it may have on the property (gross livable area, appraised value and choice of comparables) after correction.

I have seen corrections for illegal, or unpermitted, conversions/additions as simple as building inspector approval (meet building codes) to complete removal to restore the property to its original condition.
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Scott Godzyk, Agent, Manchester, NH
Mon Jun 14, 2010
if the seller agrees to it, then it shoudl be done before having the appraiser complete their appraisal. If the appraiser has already been there and you are going to complete the work, make sure you check what they will want as far as work and if they want any permits or such. By asking you can avoid problems at the new inspection. good luck
Web Reference:  http://www.ScottSellsNH.com
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Gerard Dunn, Agent, Chevy Chase, MD
Mon Jun 14, 2010
Yes, but the appraiser may have to re-visit the property and review the documentation proving the issue has been taken care of. Prepare for additional expense for the appraiser.

Good Luck!

Gerard Dunn
Associate Broker
Serving MD, DC and Northern Virginia
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