Should I spend money on a home I don't own...?

Asked by Irene, Oak Park, IL Sat Sep 13, 2008

I am currently purchasing an "AS IS" home from an 88 year old man. The house is under contract. We've completed the inspection and we hit a small snag from the Appraisal. I am financing the home via FHA so I can have more money in my pocket to make repairs/upgrades. The Appraiser has said that the window sills must be scrapped and painted and a small piece of loose concrete on the front stairs must be repaired prior to closing. I've been told and it is in the contract that the house is being sold "AS IS." What options do I have? The seller is contributing 3K towards closing costs. I don't want this deal to fall through as I've invested 2K in earnest money, the home inspection and appraisal, etc. My suggestion is that the seller take $1,500 if needed from the 3K and make the repairs. What I don't want to do is use my money to make repairs on a home I don't own. Any suggestions? Both realtors (seller and buyer) are relatively new, my real estate attorney is useless.

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Larry Story, Agent, Greensboro, NC
Sat Sep 13, 2008
With govt programs FHA and VA there are certian things that have to be up to their codes before they will allow someone to buy. VA loans are much stricter. If you really want the home it is going to be yours just as soon as you close. One way or another you are paying for it. If they take $1500 from what they were going to give you in closing costs that just means you have to bring $1500 more to closing. If this is a deal breaker for you then walk away. Many homes are being sold "AS IS" in these times and usually they are foreclosures and short sales. You are the buyer so you have to make the decision. While yes technically it is not your home in a short amount of time it will be. I have a buyer right now that is buying a home and there is one pane broken in a window on the house. That window has to be fixed per FHA guidelines before they will sign off on the loan.

Hope this helps,
3 votes
Brandon Schu…, Agent, Western Springs, IL
Tue Sep 16, 2008

A couple of things here. Because you are using a FHA loan, those repairs must be completed prior to closing. The FHA appraiser will come back and do a re-inspection. It seems like the repairs they are asking for is something a handyman can do. I would suggest asking the seller to hire a handyman or get a family member over to complete the repairs. You could always have him deduct the cost from the credit.

The credit is also a concern to me because if you're closing after September 30th then you run the risk that the lender won't allow the credit to be shown on the closing statement. New Federal laws won't allow credits anymore, after September 30th, of this year. You better check with your mortgage company on this because you'll get to the closing and the title company will mention this and it will cause an issue and it's not fair to you that everyone knew this and didn't say anything until the closing table.
2 votes
Jacek, , 60707
Wed Jul 15, 2009
Fix it. Painting is not really complicated job and you can do it easily. Fixing concrete?. Probably you should use special mix with vinyl? inside - special for very thin applications so is going stick well to old concrete. of course use hammer to clean/ make the existing surface little bit rough so is going stick well. Any particulars about concrete you can easily learn from available handyman books. If you are not going do that you are going of course loose the money you already invested in appraisal etc. Plus you are not going get the house. Finding inexpensive house suitable for FHA financing is quite a challenge. In my area (northwest Chicago) In my estimate below 200k there is about 1% of homes suitable for FHA or with small repairs needed. The rest are ruins owned by banks. Cash Construction loans only. Typically with mold in the basements, sometimes missing furnaces, damaged wood floors due to the moisture in unheated house etc.
It think you may be really lucky to have opportunity to get this house with your financing. I have had in past few months several customer doing extensive repairs before the appraiser visit. With few $K in repairs invested in a house they do not own this is nerve wrecking but only way to get such house. If the house is in perfect condition there is usually quite few buyers competing and raising the prices, so actually I see such small repairs as a blessing - It keeps competition away.
0 votes
Alan May, Agent, Evanston, IL
Wed Sep 17, 2008
Even in "as is" condition, most FHA contracts have the seller sign documentation that they will pay for minor repairs to be in acceptable condition for FHA inspections. So, technically, the seller is on the hook for the repairs (for FHA or VA) to bring the home into compliance.

And while most lenders are now balking at credits on the HUD-1, there are lots of little work-arounds... (like lowering the purchase price, or paying closing costs (which is allowed).. up to about 3% of the purchase price). But Brandon is correct that the lenders no longer like to see anything marked "credit" including simple repairs.
0 votes
Ruthless, , 60558
Tue Sep 16, 2008
I should have looked at your profile before I asked and answered your last post from several months ago. The short answer is NO YOU should not spend money on a home you don't own. However, Larry was correct that in the long run it might be your money anyway - just don't shell it out yourself.

You say that both Realtors are relatively new and it is apparent that they haven't even told you some of the basics. Just because you are buying it "As Is" and it is under contract doesn't mean that you loose your earnest money if the contract falls through because of these repairs. You have several realistic options:
1) seller makes and pays for the repairs
2) seller makes and you split the cost for repairs - at closing
3) seller makes repairs and you pay for it at closing
4) seller doesn't make repairs, he doesn't get his house sold and you get your earnest money back

I have a great inexpensive real estate attorney I can refer you to. You should also ask to meet with your agents broker to get advice.

Brandon: Holy crap you're kidding! Glad I read your post. I guess I won't be giving out the repair credit advice anymore. Any idea if it can go into escrow and paid directly to the repair contractors? Of course your not an attorney and can't give legal advice, but as a everyday person from personal experience, do you think it is possible?

Good luck and email me via my profile if you would like the attorney's name.
0 votes
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