The problem was communication and your Loan Officer made a critical mistake. Assuming that you're doing a conventional loan, your Loan Officer should have known that this was going to be required in order to close. So now you're in a jam. Your bank probably issued a commitment that might have been sent to the seller, and that could be a problem.
What was supposed to happen was that your Loan Officer was supposed to review the appraisal or, in fact, a simple conversation with yourself or the Realtors involved could have given the Loan Officer an idea of this issue and he/she right away should have informed you that you needed to do a 203(k) in order to get this loan.
What few banks are willing to do, including mine, is to possibly hold funds in escrow for you to do the work after closing. Try asking your current lender or consider another lender who can quickly get you to a closing table.
Feel free to contact me if you have any questions or want a 2nd opinion. Good luck!
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Senior Loan Officer
STERLING NATIONAL BANK
310 Crossways Park Drive
Woodbury, NY 11797