When I bought my home five years ago, it has a garage converted kitchen without permit. Is that possible for me to get loan refinance now?

Asked by Serena, Sunnyvale, CA Fri May 27, 2011

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, ,
Sat May 28, 2011

With a rehab loan, and when you own the home already, you usually start out by selecting your contractor to bid out what exactly the improvements are going to cost, what types of materials would be used, etc. I usually recommend you get at least 3 estimates but for a huge job I'm not sure if estimates would cost money to get since they'd be quite involved. But that would be step 1. After that is done, I'd recommend you contact an appraiser or real estate agent who really knows your neighborhood, as you will be looking for some sort of estimate of your home's value after those items are completed. This may involve taking someone out to lunch in trade for their time/expertise. You can skip this and just wait until the appriasal is done, but me personally I like to know as many facts as possible before delving into the loan application. Anyway, that value figure will be important because it will determine what the maximum loan amount you could potentially get to do the improvements (and pay off your existing mortgage). Next you'd want to apply for the loan. You could go to someone who only does the 203k, or who only does the Fannie Mae HomeStyle, but I'd recommend you work with a loan officer who does both (and does both well). When you approach that loan officer you will have pretty much everything they need to start crunching some numbers off the bat - the current home's value, the cost of improvements, the type of improvements, and the home's estimated value after the items are complete. Then the rest of the process is qualifying just like any other mortgage, you got your credit, income, debts, etc. There is a part that involves getting your contractors approved, including reviewing their license, resume, their general liability insurance policy, etc.

http://portal.hud.gov/hudportal/HUD?src=/program_offices/hou… and http://portal.hud.gov/hudportal/HUD?src=/program_offices/hou… has some great reading on the FHA 203k loan.

http://portal.hud.gov/hudportal/HUD?src=/program_offices/hou… has all of FHA's resources on 203k loans.

Fannie Mae HomeStyle renovation will allow renovations/repairs totaling up to 50 percent of the as-completed value. They have a nifty form you can download that will help you calculate the maximum new loan amount. https://www.efanniemae.com/sf/formsdocs/forms/1035.jsp if you are aware of the program guidelines.

https://www.efanniemae.com/sf/refmaterials/eligibility/pdf/e… (page 4) are those guidelines.

https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtra… is a list of "Consumer Tips" Fannie Mae has about their HomeStyle program. There is also some HomeStyle Resources (including a recorded presentation on the loan program, put together by Fannie Mae) at https://www.efanniemae.com/sf/mortgageproducts/pdf/hsrenofac… Specific details about it can be found at https://www.efanniemae.com/sf/guides/ssg/sg/pdf/sel012711.pdf (VERRRRY large .pdf - page 682)

I have a done a few 203k loans, and I have done 1 HomeStyle renovation loan, so I wouldn't say I am expert at navigating the process... but it isn't terribly difficult as long as the loan officer knows the guidelines (as well as the lenders "overlay" guidelines). Plus I don't offer the renovation version anyway, so I don't believe I'd be the "man" for the job. However when the time comes, if you do need a recommendation, I can find the type of loan officer you would need.

Hope this information has helped.
0 votes
Nick Sakalis, Agent, Syosset, NY
Fri May 27, 2011
Unfortunately, this problem come's up often. Many people don't even realize its a problem until its time for them to sell or refinance. It may be possible to refinance with certain lenders but the odds are not with you. I would speak to an engineer and see how costly and how big of an ordeal it would be to legally convert it.
2 votes
FHA 203k Mor…, Other Pro, CA,
Tue May 31, 2011
Hi Serena,

It could be a hit and miss sometimes when it comes to a situation like yours depending on the type of loan, lender and more importantly the feedback from the appraiser. As a recommendation it could be best to work with a source that can do 203k's in case that is a better option for you instead of a conventional or regular FHA loan so that you don't have to start the process over again.

Best of luck
1 vote
John Arendsen, Agent, Leucadia, CA
Mon May 30, 2011
It's all about down payment, credit, employment, LTV and comps.
1 vote
Ruth and Per…, Agent, Los Gatos, CA
Sat May 28, 2011
Hi Serena

You should have no issue, as the garage conversion Dodd not add square footage.
I know of a few lenders that will loan you money provided of course the home
Appraises, you have good credit , job and a decent debt to income ratio.

It was. Quite common to buy converted homes a few years out.

Keep in touch and let us know how it all went.
Coldwell Banker

1 vote
, ,
Sat May 28, 2011
The issue with an unpermitted addition, particularly when it has essentials like the kitchen, is that if the city wants to they could make you convert it back... and then you'd have no kitchen (yes of course you'd build the kitchen elsewhere but the lender is looking at a worst case scenario).

Not sure why Tony says a lender isn't interested in permits, I'd be careful about that type of advice. I'm sure your insurance provider would be pretty interested in this as well, because if the city won't permit it, is it because of electrical or plumbing issues? Something that would invalidate an insurance claim if you were to need to file one? I won't even pretend to know what Sunnyvale requires, but I bet you have very good knowledge.

Any competent appraiser will know local codes & zoning have been violated and be able to figure out what is going on. They will check for permits. They aren't dumb. You may get an appraiser who fails to do their job of uncovering the unpermitted addition, and then the lender wouldn't know, unless they got suspicious about a kitchen in a garage (I wonder what type of comps the appraiser would get).

You said you are planning on doing a major remodel in a couple years - so what is the need to refinance now? What would you be doing in 2 years from now to finance the remodel?

It sounds like with this unpermitted kitchen, the fact that you are planning on changing it anyway, and you are also looking to do a major remodel in a couple years... later on (or if you get anxious, then now) you could be a prime candidate for an FHA 203k rehab loan or a Fannie Mae HomeStyle Renovation loan.
1 vote
CJ Brasiel, Agent, San Jose, CA
Fri May 27, 2011
Serena -

Did the kitchen include moving walls or expanding? Additions that are noticeable are recently being cited by appraisers due to new HUD conditions. If the appraiser can tell (or someone tells them) that there was an addition or "major" remodel, they have to include the permit numbers on the appraisal report. Recently, I have had two failed appraisals because of non-permitted additions.

If this was a kitchen remodel with new cabinets and the like without structural or square footage addition, I would agree with other comments below.

Web Reference:  http://www.TalkToCJ.com
1 vote
, ,
Fri May 27, 2011
Of course it's possible! A lender is not interested in permits etc. The only thing the lender is interested in is the value of the house - today (and of course your credit and income). Now, an appraiser may well reduce the value of the house because of the unpermitted kitchen, but depending on the size of your loan relative to the value of the house - the LTV, or Loan To Value - you may still be able to refinance. Call me over the weekend and let's talk. I live in Sunnyvale.

Tony Lacy-Thompson
Sunnyvale Mortgage Broker
Web Reference:  http://www.SVMortgageGuy.com
1 vote
David Cooper, Agent, Los Angeles, CA
Fri May 27, 2011
What is the house worth now and how much is left on your loan? If you got your house witha very low down payment, you might not have enough equity to get it refinanced. Plus, they will check your credit and FICO score.

David Cooper Las Vegas Foreclosure Investor in Bank Owned REO's at 20% off. For freee list
email: davidcooper@lasvegaswinner.org or Call +1-7024997037
1 vote
Marcy Moyer, Agent, San Ramon, CA
Fri May 27, 2011
It is up to each individual lender. I think it is a great idea that you ask your current lender first. If that doe not work just keep calling lenders until you find one who does not say no.

Marcy Moyer
DRE 01191194
Web Reference:  http://www.marcymoyer.com
1 vote
Robert Lei, Agent, Cupertino, CA
Fri May 27, 2011
Hi Serena,
If your current lender gave you the loan 5 yrs. ago without permits have you thought about going back thru them again? If they lent to you before with the garage conversion they MAY do so again. Market has had so many quideline changes I'd probably call first and feel them out first BEFORE you have
an appraiser come out and look it.

Would it be hard to take the stove out OR do you have a full kitchen w/ sink and cabinets? My mortgage contact had one go thru BUT the borrower removed the stove. There was a refrigerator out there but a lot of people do have 2nd refrigerators in their garages. I'm not sure how complete your
kitchen is.
1 vote
Andrea Wince…, Agent, Milpitas, CA
Fri May 27, 2011
Hi Serena, when you bought your home 5 years ago, unless you paid cash, the converted garage must have passed appraisal. However, lending standards have tightened a bit. It is best to ask you lender. You could start your re-fi inquiry with your existing mortgage lender. If you need a referral for others, please email me through my Trulia profile.
1 vote
April Tavares, Agent, Campbell, CA
Fri May 27, 2011
Did you finance your original purchase? You may want to check with your current lender or the person who you worked with when you purchased your home 5 years ago.

All the best,
April Tavares, GRI, ASP
REALTOR, DRE License #01742179
Follow me on Twitter: http://www.Twitter.com/AprilTavares
Web Reference:  http://www.AprilTavares.com
1 vote
, ,
Fri May 27, 2011
I'd think any appraiser is going to think it's odd to have a garage converted to a kitchen, and then require permits for it to be considered in the value. Does it have any other kitchen other than the one in the garage? Is it possible for you to get permits?
1 vote
Thomas Young, Home Buyer, Phoenix, AZ
Sun May 26, 2013
203k loan is designed for home repairs.
From my experience with 203k loans, the best advice is to use a lender that offers assistance via third party with 203k processing.
This shortens the closing time by weeks. Try http://www.cfs-mortgage.com/203k for more information.
0 votes
Serena, Home Owner, Sunnyvale, CA
Sat May 28, 2011
Thanks Shane for your detail analysis. How good that will be if I can have a good broker like you when I tried to buy this house five years ago. At that time, my agent never mentioned any consequence about unpermitted work and pushed me to remove contigency quickly. And at that time, the appraiser didn't mention the unpermitted work on report! I wish the real state always has good regulation as now eventhough I lost tons of money on this house.

I would like to refinance because I paid much much higher rate than current rate. I want to remodel the whole house very soon but haven't got enough money in my saving account. I didn't know FHA 203k rehab loan or a Fannie Mae HomeStyle Renovation loan. what is the requirement to get that loan? Could you please help?
0 votes
Serena, Home Owner, Sunnyvale, CA
Fri May 27, 2011
Thanks everyone for your helpful answers. 2 years ago the appraisor described the nonpermit conversion and claimed the value is deducted already. I got the refinance approved. But last year the appraisor consider the value and put the permit as the "subject to". I cannot get the permit from city and I don't want to convert back. I plan to do it when I do the big remodeling in 2 years. so I just fail to get the loan approval. I wonder if it is a must to get permit or it can just deduct value from house. Should I try to apply this year again with the risk of wasting 400 dollars? could I ask the appraisor deduct some value from my house and not put "subject to acquireing permit" in the appraisal report?
0 votes
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