What is a lender looking for when there is an english basement without a certificate of occupancy and?

Asked by Steve Duren, Zurich Switzerland Sun Mar 15, 2009

how does this impact the loan?

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Michelle Buc…, Agent, Washington, DC
Sun Mar 15, 2009
I am guessing the lender is looking to see if the basement is just a finished basement or an acutal separate apartment. If the basement is being used as a separate apartment, the lender will probably not consider the income from the rental unit as part of the analysis of the loan if the unit is not a legal unit. I am a realtor and not a lender so I am not 100 percent sure about a rental unit that does not have a C of O. You really need to talk to a lender about this issue and ask what they are looking for.
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John Smith, Agent, Washington, DC
Sun Mar 15, 2009
It may, it may not. The normal (in my experience) deciding factor is: Does the building have a 2nd Kitchen? If it does, then the lender may consider that a 2-unit building. Lenders have different criteria for loans for single family and multi-unit loans. (Normally tougher and more economic driven;, i.e., can it be rented, how much, what's the history of it, how does that affect our ability to foreclose; does it endanger the property?, etc, etc. ad nauseum)

So, if the property has a second kitchen, in the english basement, or, possibly, a second meter, electrical or gas, then the property may be considered as a multi-unit. If so, the loan may be renegotiated. If not, it shouldn't be an issue. (Note, at one time, the basement in the kitchen was considered a plus; Now, not so much, at least for the lender.) If there is no C of O, and you don't want the loan to be considered a multi-unit, then for the appraisal, it might be necessary to remove the kitchen and/or fridge. Note, I am NOT advocating any fraudulent action, but if there is a kitchen, but you have no intention of using it as such, then you might want to talk to the seller about modifying it prior to the appraisal.

Does anybody else have any other ideas why a lender would be examining an English Basement?
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