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construction loan on existing property
We are working through financing on a home that will need some small repairs (guttering in 8 ft spot and soffits in 2 ft spot and the second (not main) stairwell to the basement needs a step repaired). We planned to go with a conventional mortgage with 20% down and we had reserves to make the nessessary repairs and to remodel the inside the way we would like. However the appraisal came back at a C5 because there was some damage to ceiling tiles from a previous leak that was repaired 5 years ago however they never made the inside repairs because the owner moved out of state and no one was living in the home. The inspection is clear of any roof work aside from soffit and gutters however it was noted in the appraisal and our original lender was requiring a large amount to be escrowed and not released until the repairs to the roof (although fixed) were made and verified by an inspector. I think the mess (stuff all over the place) the owners and her family left in the home as they have slowly worked on moving things out has drastically added to the C5 rating too.
So...now we are considering a construction loan and I am just wondering if anyone else has done this with an existing home purchase for a remodel and how it worked out. Not looking at a 203K but traditional construction loan. I am waiting for our contractors bid and some more questions to be answered by the bank. We have great credit and a decent reserve to work with. How hard is this going to be to get through the bank? Any other options?
Re: construction loan on existing property
The "C" ratings are new condition ratings that appraiser have to use per Fannie Mae. They are so confusing.
Fannie Mae's description of a property in C5 condition:
The improvements feature obvious deferred maintenance and are in need of some significant repairs. Some building components need repairs, rehabilitation, or updating. The functional utility and overall livability is somewhat diminished due to condition, but the dwelling remains useable and functional as a residence.
Have you considered seeing if your lender will forward the inspection to the appraiser? He/She might be inclined to change the condition rating on the report if they have proof that the roof does not need repair.
We're doing a construction loan right now. It was pretty easy, we got a mortgage on the house, then a second HELOC based on the future value of the home (an appraiser came through with the scope of work from the contractor we picked and appraised based on that), and when the renos are done in May we'll be refinancing both loans into one final loan. I think we're going to be at conventional 5% with no PMI.