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Lending for Foreclosed Properties
June 22, 2009 by Jim Bigelow · Leave a Comment
Many buyers contact me who are pre-approved and want to buy a foreclosed property so that they can get a great deal. Foreclosed properties range in condition. Some just need some updating while others need structural, sheet rock, floor and other repairs. These homes are usually sold “as is” which means the owner/bank who now owns the property will not make repairs. This is where we get into a catch 22. Conventional, VA, FHA and Rural Development lending require that if there are repairs indicated by the appraiser, structural, termite & EMP report that those repairs be done prior to closing. I have had borrowers want to work on the home and do the repairs themselves prior to closing. This creates several problems. First of all you are trying to make repairs on a property that you do not own. There is a liability issue for the current owner/bank to have someone making repairs on a home they do not own. You can try and find a mortgage lender that offers a FHA 203b mortgage. If you find a lender that still does FHA 203b mortgages then you can buy a home “as is” and finance in repairs depending on appraisal. Be warned this type of mortgages take a lot of time to process and close and involve a lot of paper work. Make sure you give yourself a lengthy contract period to assure closing. The only other option is to obtain a construction mortgage through a banking institution. Construction lending will have their own guidelines for lending but most banks are requiring 20% down. (This will vary for each banking institution.) If you get a construction loan you will have a time frame to make the purchase of the home and make repairs. After repairs are done you could then refinance the home into a permanent 15, 20 or 30 year mortgage.
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