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Will FHA loan approve a house that needs this work?
I am writing to ask this of people that have actually done this, not what you have heard. I am hearing both things and I just want to know from those in the exact same position.
We are trying again with this short sale house and we have been advised that we most likely have it this time as we upped our offer.
We have the regular FHA loan in progress for this house and are worried over a couple of things.
The house has a couple broken windows, and boarded up broken basement windows. Also it has no appliances and needs handrails inside. We have had the house inspected and the inspector is who mentioned the handrails. Also the only old wiring is in just one room. Also we would need to upgrade the electrical box to 200 amps possibly.
I have read that those things can be a problem with the FHA loan and that they won't give it to you.
Thing is, upon getting the house we would do ALL those repairs. Is there any way that they would give us a timeframe to do it, make us show them proof of the repairs by a certain time-- anything?
ANYONE get a house with FHA loan that needed any similar work and it was approved? Or did they give you any timeframe/requirement to repair and then they gave you the loan?
Re: Will FHA loan approve a house that needs this work?
FHA, and most lenders in general*, will not lend to a home that has no kitchen appliances. A working kitchen is considered a basic habitability requirement.
The other stuff I don't know for sure about, but I know that one will be an issue.
eta - lending to a primary occupant, not an investor.
DH&I just moved into our new home and I can tell you from going through all of our financing options that there is a FHA loan that allows for you to factor in the home repairs to your loan. There are some catches (my uncle is a contractor and he has given me the run down on his end of things) though.
1) The repairs have to be done by a licensed contractor. With that, most lenders have contractors that they 'prefer'-but you are in no way obligated to use them.
2) The requirements for getting these loans is different (credit scores, debt/income ratio, downpayment etc).
3) There is a time limit-like before you are allowed to occupy the home.
You can do it-ask your lender what it's called-it's a series of three numbers and a k I believe. like a 213k or something like that.
Seven years ago, when DH bought the house we currently live in (only for 4.5 more weeks!), he had an FHA loan. There were no kitchen appliances besides a mini fridge and a microwave, no hand rails, peeling paint on the inside of the windows, one cracked window on the main floor, broken basement window, and boarded up basement window. They told him he needed to put hand rails on the stairs (inside and out) and paint over the peeling paint. However the lady who was selling the house was batshit crazy, so she wouldn't fix any of it, or let him come in to fix any of it. So they ended up letting us get in a few hours before closing and fix the stuff really quick and they appraiser came to check it out right after we closed. It was kind of a mess.
We ended up taking the hand rails off again. Now that we're selling our house, we asked our realtor (who used to be an appraiser for a bank) if the hand rails would be an issue. He said it won't. I guess it all depends on the appraiser.
Good luck!
TTC Baby #1 since September 2011
ecritzz>> I'm curious, when you did the 203K loan did you have to hire a contractor? Other than paperwork in itself did it prove to be challenging in any other way?
I wonder if they would not approve this if they would allow us to peruse the 203k... but then again we'd prefer to not hire a contractor as my husband can do all these things well and knows people than can, etc.
Appraisers are not home inspectors. I have never had an appraiser call hand rails as a lending requirement UNLESS we gave the home inspection to the lender- who then has to give it to the appraiser. You can get a lot of things past appraisers that way. I also never had an appraiser analyses electrical work unless it was blatantly obvious. Upgrading to a 200 is not that obvious.
You don't have to have any kitchen appliances to buy a home, in fact that's why purchase and sales contracts list these items on a SBOS (Separate Bill Of Sale).
Been a Realtor for 6 years.
My appraiser (not inspector) would not let us close because the master toilet water supply was shut off and the drain stopper in the sink was closed. The water to the house was off at the time of the inspection so it was not noted on the inspection report. We had to fix the toilet and open the drain stopper and have the appraiser come back out before he would give the clear to close. We had a conventional loan and not an FHA so I would say that it not out of the realm of possibilities.
We are set to close next week. We went from USDA (Rural Development higher income limit) to FHA 203k b/c the bank w/n pay for a new septic when it was found non-compliant, nor would they let us go 50/50 nor would they let us escrow funds to hire it out.
FHA is backing the home so in general, they want everything to be in good working order...some repairs they will fix - it all depends on the bank that owns the home. Our bank wouldn't budge on anything; others we know had banks that did some or ALL repairs prior.
The 203k loan is what we are using to escrow for the septic. All work MUST BE DONE by a licensed contractor--the contractor needs to show their license (not subcontractors), business references (which are contacted) and fill out a W-9. They have to complete work within X amount of time (typically 6 months unless say, weather is a factor) and they usually can begin work 2-3 weeks after closing.
You cannot add things like appliances in there but repairs like wiring, etc. can be done...but not by your hubby, etc. (mine is super handy) but NOT licensed so no can do. There will be a second appraisal by FHA now, not RD...to make sure there is nothing 'wrong' so to speak before closing.
Home rates are low - but 203k has a slightly higher interest rate (.5% to a full 1%)..our rate from RD went up by .5%. You will need 3.5% of the purch price (can be gifted-specific documentation on that), you need at least 640 credit score, and there are a few more documents to sign (FHA HUD disclosures), there are a few 'other' fees associated with 203k (updated title, second appraisal in some cases, etc); other than that, the process really takes no different approach from accepted offer to closing. We will close in 30 days - standard for other transactions.
I rarely post but after reading all of the misinformation out there decided to add my two cents.
We just closed on a house at the end of July and used a FHA 203K loan from Wells Fargo. Yes, the process was a little more difficult (took 45 days from start to finish) and required more paperwork than the conventional loan we were originally trying to get, but in the end it was all worth it. The house we bought was a short sale that needed some significant work after sitting empty for at least a year. The pool cage and A/C had been stolen and needed to be replaced. There were no appliances or water softener either. The way 203K works is you find a general contractor (we have a family friend who we used) and they draw up a bid/proposal for all of the work needed to get the home up to FHA standards. We got bids from many subcontrators ourselves first because originally we were going to pay for it all ourselves out of pocket. Your GC has to be licensed, background checked, and fill out all kinds of forms/paperwork for the bank. We did a Streamline loan, which means nothing structural, and we could include up to 35K of improvements AS LONG AS THE HOUSE APPRAISES for the home purchase price plus the cost of improvements. The appraiser takes the proposal and appraises the value of the home based on IMPROVED value once the work is done. You can include pretty much whatever you want in the improvements...flooring, appliances, paint, etc. You cannot add a pool but in our case we could include replacing the pool cage and cleaning out the pool/getting it up and running again. We included everything necessary (appliances, A/C, pool cage, water softener, other minor things, new tile for main living area) and then also did some stuff out of pocket ourselves (paint, fence, carpet). The bank gives you a loan approval once they complete the GC background check, review the proposal, and get the appraisal back at the right price. Once you close, you contact the bank and someone is assigned to you to handle you disbursements. They only release about 40% of funds initially to get the work going, so all of the subs have to be aware they will not be paid in full until all work is complete. We completed all of the work in less than a month after closing and are now just getting ready to submit the final paperwork for the remainder of the money to pay everyone off. All permits and inspections have to be done before the bank will release the money. The checks are written to both us and our GC jointly.
This house would not have been approved for a regular FHA loan because of their strict requirements at inspection (there can be no safety issues, must have a refrigerator) and we knew the seller's bank would not approve any improvements before sale so our only option for buying this house was a 203K loan. But now we have a practically new house, designed the way we like, and got an amazing deal. While the process was stressful it was completely worth it in the end!
I have no experience with an FHA loan, but find the requirement to have a refrigerator quite interesting. I have purchased/sold a few home and none of them ever included a refrigerator (or washer/dryer for that matter). Very few of the homes we looked at included the refrigerator in the sale unless it had custom cabinetry on it. FHA sure is picky!
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