Please help me go from "under contract" to mortage-holder

March 3, 2013 1:39 PM

I am trying to purchase a foreclosed house with a homepath loan, but I do not qualify for a homepath loan despite excellent credit. Apparently a conventional loan will not work for the current condition of the home. Can you help me sort out my options in Virginia?

I am trying to buy this house: cute starter house, and am currently under contract for it. I have signed a buyer's agreement with my realtor, and I have signed the intent to get a mortage with my mortgage lender and signed the forms that show my monthly payment and escrow costs and everything. The home inspection checked out with a couple big fixes needed--the furnace and the roof. The home is in forclosure and has been vacant for about 3 months. I am in Virginia.

I was supposed to close March 14th using a homepath loan, which is a conventional loan that allows you to make a small down payment and not pay for mortgage insurance (PMI). An appraisal was also not needed with the homepath loan, so I didn't do one. But, my lender is now saying that I do not qualify for a homepath loan because I do not have 3 open lines of credit. I have EXCELLENT credit history and have shown alternate means of credit-worthiness. I was pre-approved for twice the amount I would need for my mortgage. I could do another type of loan, but they are saying that a bank will not loan me money because the furnace was red-flagged/condemned, and it is inhabitable with the furnace as-is.

So, they are saying that it is the bank's decision if they want to make the repairs to the house so that I can purchase it with another type of conventional loan. They are also saying that the house now needs an appraisal for the loan, and that the bank will likely raise the price significantly once the appraisal is done, because it is likely to appraise much higher than the contract price.

I do have an attorney working with me for the home, but have not spoken to them directly. (They are researching titles, etc. on the house.)

I feel like I am getting the run-around from my realtor and lender. They have contacted the listing agent of the house to ask for authorization to make furnace repairs and/or install a heat pump in the house. But, they could drop me and go with someone who can pay for the house with a homepath loan. They could also increase the price of the house a lot more than the cost of repairs.

I think this sounds fishy, and I feel like they may have a higher bid and they are trying to force me out. I also know, however, that contracts on forclosures often fall through.

I think this is a well-priced house, it is great timing for me to buy, it is right down the street from where I am renting so I can fix it up as I go without rushing, and I have a cushion to make repairs and/or put down a bigger down payment if I want to.

Do you have any tips or resources for me? Should I talk with my attorney for the house? At this point, do I have the option of going with another bank if they would give me a loan, even though I have signed the intent to purchase a mortgage with a lender? I don't want to lose this house! Many thanks. (First time home buyer if it isn't obvious.)

posted by shortyJBot to law & government (7 answers total)

First of all, absolutely talk to a real estate attorney!

I am not an attorney, but I'm answering because we bought a wreck of a house for which we could not get any normal mortgage, by getting a HUD 203K Rehabilitation Mortgage. This might not be what you want to do or even qualify for, but you might want to check it out.

But talk to your lawyer!!!
posted by DMelanogaster at 1:44 PM on March 3 [1 favorite]

Oh, man, this sounds exactly like what happened to me when I was trying to buy my house. The whole process was horrible from start to finish, the seller nearly walked, and I still can't believe we actually closed and I got the house after all. I tried two banks and eventually got a Wells Fargo Renovation Mortgage, so you might want to look into that. How it works is, you get a mortgage for the total amount of the house + needed repairs and you pick a licensed general contractor to do the repairs, which start immediately after close and have to be done within six months. The contractor is paid out of your escrow fund. It worked out for me, but the process was, as I say, horrible. Wells Fargo took forever, there were appraisal issues, at one point they said I couldn't buy the house because the previous seller had owned it less than a year (!!!), you name it. I hope there's an extension clause in your contract--although, since you're trying to buy it from a bank, that may be less of an issue. It took us over three months to close.

Also, I should say that my house needed fewer and more minor repairs than yours does. The first bank refused to lend because my house needed minor siding repair and had burglar bars on the windows. The roof and HVAC are a pretty big deal, sorry to say. It's a really messed up situation--there are houses finally priced low enough for people to buy them, but the only way to buy those houses is with all cash. See also: Buying house out of foreclosure (NYT).
posted by Violet Hour at 2:47 PM on March 3 [1 favorite]

Oh, and to try to answer another question, I haven't seen your contract, but I see no reason why you couldn't go with another bank for the mortgage if they'll give you one. I got pre-approved with two different lenders and also tried a tiny local bank before ending up with Wells Fargo. Feel free to memail me if you want.
posted by Violet Hour at 3:33 PM on March 3 [1 favorite]

Thanks, DMelanogaster and Violet Hour!

I am embarrassed that I spelled "foreclosure" incorrectly twice.

Thanks for the NYT article. Good to know I am not alone in the struggle, I guess.
posted by shortyJBot at 6:14 PM on March 3

(and you only spelled mortgage wrong once! (in your title) (kidding, couldn't resist, etc.)) --

That Wells Fargo renovation loan sounds as if it is a HUD 203K with Wells Fargo as the lender -- the 203K's always go through a bank -- those were our exact constrictions -- the money in escrow (that was horrible), the inspections (horrible), the 6-month limit (which we went over)(horrible) etc. -- but we got the house so, ultimately, worth it.
posted by DMelanogaster at 6:19 AM on March 4 [1 favorite]

Ok...update! It looks like the bank is willing to work with me to install a heat pump and replace the roof, and add these repair estimates to the price of the house.

It still depends on the bank's FINAL decision and the appraisal of the house, but we are moving forward and things are looking promising...
posted by shortyJBot at 8:01 AM on March 5

Ugh, update. It didn't work out. The bank said they were willing to do an appraisal for the house and "front" the money for repairs, which would be added to my mortgage, but on the last day of the contract they bailed. I was really bummed for a couple weeks, but I think that things work out for a reason. The house is already under another contract.

On the other hand, I have my earnest money deposit back and the freedom of being a continued renter.
posted by shortyJBot at 10:09 AM on March 30