So you did the right thing. You were able to get pre-approved for financing and everyone tells you it is as good as buying with cash. Then you start looking at houses and your agent tells you that the property you want to see is ineligible for the type of financing you are approved for. What gives???
It turns out that not all financing is equal. If you are looking for a low down payment option, FHA, PHFA, VA and USDA are most likely the choices that meet your criteria. Well, these types of financing options have restrictions on the condition of the property they will finance.
For instance, FHA & USDA will not finance any property
with peeling paint on the exterior or interior of the home. The appraiser will visit the property and make sure it complies with all of FHA requirements. There really is no “list” that they must go by and each appraiser can come up with different items that may need to be repaired. However, they are looking for mainly health and safety concerns. They may call for a roof certification if it looks worn, any broken windows will be flagged, water penetration in the basement, mold is a biggy, and even a structural certification if the appraiser sees something he feels is a concern. Plus, in order for them to do a thorough inspection, all utilities must be on and functioning at the time of the appraisal.
This is a BIG issue! If a property is vacant in Pennsylvania, such as a foreclosure that is bank owned, or a fixer upper property, it most likely has been winterized. Other issues could be the service company removed the meter, or shut off service due to non-payment, and one of the most popular issues, in the words of one of my home inspectors, the very technical term that something is “broken”.
If it is a bank owned property, it is the buyer’s responsibility to have all utilities turned on at time of the inspection and appraisal. This can be quite costly as you MUST turn them back off and re-winterize the property if applicable. Not only that, but there is not a bank around that will fix anything that may be wrong. Nor will they let you fix it prior to closing due to liability issues, damn lawyers, lol. Cannot fix it, cannot have it fixed, need it fixed for financing; can you see the stalemate?
Being that the current inventory is made up of almost 40% of properties that have some form of deferred maintenance, many homes are just ineligible for low down payment financing. The only way to overcome this most of the time is rehabilitation financing. Luckily, the FHA 203k loan can help.
The FHA 203k loan is a rehab loan that allows you finance any upgrades or repairs into the new mortgage, yet still only pay 3.5% as a down payment. Granted, the down payment is based upon the sale price plus the cost of the improvements being performed, but other than paying cash, it is your only alternative.
So as you can see, the type of financing has almost as much to do with the type of home you are looking for as the sales price! Couple into that any seller assist that you may need, and you can imagine that there are many properties in your price range that are just not best for your particular situation.