How can I buy this house?
May 29, 2010 12:44 PM Subscribe
I can't buy the house because it isn't up to code and I can't fix it up because I don't own the house. Is there a way to resolve this?
The bank isn't likely to finance the purchase because the house is older and doesn't comply with current standards, although it is in good condition. Some friends in the neighborhood had the same situation when they bought their house, and they put money in an escrow account to be used by the owners to get the house up to code before they purchased it. I proposed this to the realtor, but she said the owner is really old and lives in a nursing home and can't oversee any repairs and wants to sell the house as is. I know the seller has adult children who have maintained the property for many years. The house is on a duplex lot, and the owner thinks someone will buy the house to tear it down and build a duplex, but she's selling the property for $240,000, the exact same price as a duplex two doors down, so I don't see why anybody would do this. The house has been on the market for about a year now.
I really like the place, it's in a good neighborhood, next door to good friends, and it has a huge yard. I'm a first-time homebuyer so I'm very new to all of this. Is there a way I can pay for and coordinate the repairs necessary to buy the house?
The bank isn't likely to finance the purchase because the house is older and doesn't comply with current standards, although it is in good condition. Some friends in the neighborhood had the same situation when they bought their house, and they put money in an escrow account to be used by the owners to get the house up to code before they purchased it. I proposed this to the realtor, but she said the owner is really old and lives in a nursing home and can't oversee any repairs and wants to sell the house as is. I know the seller has adult children who have maintained the property for many years. The house is on a duplex lot, and the owner thinks someone will buy the house to tear it down and build a duplex, but she's selling the property for $240,000, the exact same price as a duplex two doors down, so I don't see why anybody would do this. The house has been on the market for about a year now.
I really like the place, it's in a good neighborhood, next door to good friends, and it has a huge yard. I'm a first-time homebuyer so I'm very new to all of this. Is there a way I can pay for and coordinate the repairs necessary to buy the house?
Best answer: You could get an FHA 203k Rehab Loan that would cover the costs of the repairs you need to make, and then refinance into a conventional loan once the house it up to code. I never went through this process, but I was considering it. You may want to ask others about their experience going this route.
Make sure the price is right, though: a good general metric is that property purchase price + renovations should give you a property that could be sold for the original purchase price + 2*renovation cost.
posted by deanc at 12:59 PM on May 29, 2010 [1 favorite]
Make sure the price is right, though: a good general metric is that property purchase price + renovations should give you a property that could be sold for the original purchase price + 2*renovation cost.
posted by deanc at 12:59 PM on May 29, 2010 [1 favorite]
This is something you could discuss with a realtor, for free.
posted by St. Alia of the Bunnies at 12:59 PM on May 29, 2010
posted by St. Alia of the Bunnies at 12:59 PM on May 29, 2010
I understand not being able to LIVE in it if it's not up to your local codes, but there should be nothing stopping you from BUYING it. People buy dilapidated buildings with bank loans all the time.
You said the bank "isn't likely". Have they actually said they wont? And if your bank wont give you a loan on it, use that to drive the price of the house WAY WAY WAY down. The bank may be more willing to finance a lower amount, or find another bank. Theyre out there.
posted by sandra_s at 1:10 PM on May 29, 2010
You said the bank "isn't likely". Have they actually said they wont? And if your bank wont give you a loan on it, use that to drive the price of the house WAY WAY WAY down. The bank may be more willing to finance a lower amount, or find another bank. Theyre out there.
posted by sandra_s at 1:10 PM on May 29, 2010
"The bank isn't likely to finance the purchase because the house is older and doesn't comply with current standards, although it is in good condition."
Have you actually tried getting financing yet or is there some gross code violation that is putting the property at immediate risk? Because any house older than five years (10 at the outside) isn't going to meet current standards. A 50 year old house essentially can't be brought into compliance with current code. A house that is in good shape shouldn't require updating to secure financing in most cases.
posted by Mitheral at 1:13 PM on May 29, 2010
Have you actually tried getting financing yet or is there some gross code violation that is putting the property at immediate risk? Because any house older than five years (10 at the outside) isn't going to meet current standards. A 50 year old house essentially can't be brought into compliance with current code. A house that is in good shape shouldn't require updating to secure financing in most cases.
posted by Mitheral at 1:13 PM on May 29, 2010
Response by poster: sandra_s, Thanks for the info. The bank hasn't said that they won't finance the purchase, as I am still in the process of applying for the real estate loan. I realize I'll have to have it inspected to find out if they will finance it or not, and shop around to find a bank that might do it. The realtor thinks there are code violations that most banks won't go for, and my friends had a similar issue moving into an older house in the neighborhood.
posted by stinker at 1:18 PM on May 29, 2010
posted by stinker at 1:18 PM on May 29, 2010
Best answer: stinker, here's another suggestion: before you even apply for the loan, find the name of a good, reliable contractor and visit the property again with him and your realtor. Have the contractor give you an estimate of the cost of the repairs to make the property livable and/or up to the standards that you would accept.
posted by deanc at 1:24 PM on May 29, 2010
posted by deanc at 1:24 PM on May 29, 2010
Response by poster: deanc, the house is in good shape. I plan to renovate much of it over time, but the standards I am worried about right now are those that would keep me from buying the place, and nobody will give me a list of what those standards are.
posted by stinker at 1:38 PM on May 29, 2010
posted by stinker at 1:38 PM on May 29, 2010
Best answer: I did buy a serious fixer with a rehab loan, as deanc suggested.
This was ca. 15 years ago, but I recall that the procedure was:
--agree on a price for the house with the seller
--the house needed >5K of structural repairs (we easily surpassed this with a total tear-off re-roof job, rebuild deck, substantial renovation of the bathtub surround, replacement of circuit box, gutters...)
--got three bids on every job
--submitted a package to the lender, who chose which bid we'd take
--borrowed purchase price + cost of bid + 10% contingency
Lots of hoop-jumping in getting the loan, lots of hoop-jumping afterward to get the monies disbursed. Attention to detail and persistence furthers.
It worked for us and went very far into turning a dilapidated old house into a sweet little cottage that's an asset to the neigbhorhood.
Be warned that the whole process (not to mention the sweat equity we put into it afterward) was a fuckload of work. Our real estate agent commented during the lengthy purchase process that many people start down the road to a rehab loan, but not many make it all the way to the end--it takes a lot of patience, attnetion to detail, and good teamwork. Fortunately my husband and I are constituted that way and it worked for us--your mileage may vary.
Good luck!
posted by Sublimity at 2:33 PM on May 29, 2010
This was ca. 15 years ago, but I recall that the procedure was:
--agree on a price for the house with the seller
--the house needed >5K of structural repairs (we easily surpassed this with a total tear-off re-roof job, rebuild deck, substantial renovation of the bathtub surround, replacement of circuit box, gutters...)
--got three bids on every job
--submitted a package to the lender, who chose which bid we'd take
--borrowed purchase price + cost of bid + 10% contingency
Lots of hoop-jumping in getting the loan, lots of hoop-jumping afterward to get the monies disbursed. Attention to detail and persistence furthers.
It worked for us and went very far into turning a dilapidated old house into a sweet little cottage that's an asset to the neigbhorhood.
Be warned that the whole process (not to mention the sweat equity we put into it afterward) was a fuckload of work. Our real estate agent commented during the lengthy purchase process that many people start down the road to a rehab loan, but not many make it all the way to the end--it takes a lot of patience, attnetion to detail, and good teamwork. Fortunately my husband and I are constituted that way and it worked for us--your mileage may vary.
Good luck!
posted by Sublimity at 2:33 PM on May 29, 2010
Best answer: I have also had a 203k loan through HUD. This was in 2001. I got my house at auction. I knew what my maximum dollar amount was for the entire loan (purchase price + rehab money), so anything above the auction price became rehab money. In my case, that was about $10k. (FYI: this money goes into an escrow account that you do not have direct access to.) As Sublimity mentions, it was a bit of a pain in the ass to do. Only one mortgage broker in my area (Omaha, NE) was qualified to give them out, so you might have to do some digging to find one in your area, depending on how big your market is.
The HUD people make you use one of "their" inspectors once you get started on the rehab. I recommend that you find out who this is, and hire them to do the standard home inspection for you. (It's usually just a regular home inspector that has jumped through some hoops to get 'certified' by HUD. You should be able to get his name from the mortgage broker.) My guy's name was Steve. "Steve" will be able to tell you EXACTLY what HUD and your local government will require you to do to the house to get it up to par.
As an example of things I HAD to do with my rehab money:
1. The overhead electrical line going into the house was hanging too low, so I had to have that raised. This is not something a typical home inspector would have alerted me to.
2. I had to bring in fill dirt to create a slope going away from the house in the front flower beds, for drainage.
3. Fix some siding/gutter issues.
4. Fixed a plumbing drain pipe in the basement.
Unfortunately, I can't remember any more "had to's". Just for your enjoyment, here are the other things I did with the money:
1. Got all new vinyl windows
2. Got vinyl siding
3. Had some wood floors redone
4. Had the kitchen cabinets reconfigured slightly to fit a regular stove, instead of the ancient (original 1958) stove top and wall oven, and to put in a built in dishwasher.
5. New counter tops for the kitchen.
6. Some interior painting.
7. Had the A/C replaced.
After each item listed above, Steve would have to come out to inspect the work. Only after his approval had been given would the rehab money be handed over to the contractor for payment. Steve handled the paperwork to make that happen, and the bank would write a check from the escrow account to the contractor.
I had a couple of contractors tell me they wouldn't work with me because of the screwy payment situation. They cannot get any money up front, and they can't get any money until Steve signs off on their work. Not a big deal, but make sure you mention it on the phone when trying to get someone to come out and give you a bid on something. Otherwise you waste your time and theirs. I don't remember having to get 3 bids for every job, nor do I remember the bank choosing which bid would be used. Maybe things changed from when Sublimity did theirs, as it seems the 'inspector approval' method is a bit more streamlined for everyone involved.
My house was in pretty bad shape when I bought it. An old lady had lived there for more than 20 years and kind of let it go to pot. Her cats had used the upstairs landing and the dining room as a litter box, and her dog had died in the living room and been left laying there long enough to create a permanent stain in the wood (and the LR had been carpeted when the dog died). Seriously, when they were showing the house, they put mothballs around to cover the other smells.
I sold it about 5 years later, after doing even more work on it with my own money. I made a very nice profit when I sold :)
posted by wwartorff at 3:10 PM on May 29, 2010
The HUD people make you use one of "their" inspectors once you get started on the rehab. I recommend that you find out who this is, and hire them to do the standard home inspection for you. (It's usually just a regular home inspector that has jumped through some hoops to get 'certified' by HUD. You should be able to get his name from the mortgage broker.) My guy's name was Steve. "Steve" will be able to tell you EXACTLY what HUD and your local government will require you to do to the house to get it up to par.
As an example of things I HAD to do with my rehab money:
1. The overhead electrical line going into the house was hanging too low, so I had to have that raised. This is not something a typical home inspector would have alerted me to.
2. I had to bring in fill dirt to create a slope going away from the house in the front flower beds, for drainage.
3. Fix some siding/gutter issues.
4. Fixed a plumbing drain pipe in the basement.
Unfortunately, I can't remember any more "had to's". Just for your enjoyment, here are the other things I did with the money:
1. Got all new vinyl windows
2. Got vinyl siding
3. Had some wood floors redone
4. Had the kitchen cabinets reconfigured slightly to fit a regular stove, instead of the ancient (original 1958) stove top and wall oven, and to put in a built in dishwasher.
5. New counter tops for the kitchen.
6. Some interior painting.
7. Had the A/C replaced.
After each item listed above, Steve would have to come out to inspect the work. Only after his approval had been given would the rehab money be handed over to the contractor for payment. Steve handled the paperwork to make that happen, and the bank would write a check from the escrow account to the contractor.
I had a couple of contractors tell me they wouldn't work with me because of the screwy payment situation. They cannot get any money up front, and they can't get any money until Steve signs off on their work. Not a big deal, but make sure you mention it on the phone when trying to get someone to come out and give you a bid on something. Otherwise you waste your time and theirs. I don't remember having to get 3 bids for every job, nor do I remember the bank choosing which bid would be used. Maybe things changed from when Sublimity did theirs, as it seems the 'inspector approval' method is a bit more streamlined for everyone involved.
My house was in pretty bad shape when I bought it. An old lady had lived there for more than 20 years and kind of let it go to pot. Her cats had used the upstairs landing and the dining room as a litter box, and her dog had died in the living room and been left laying there long enough to create a permanent stain in the wood (and the LR had been carpeted when the dog died). Seriously, when they were showing the house, they put mothballs around to cover the other smells.
I sold it about 5 years later, after doing even more work on it with my own money. I made a very nice profit when I sold :)
posted by wwartorff at 3:10 PM on May 29, 2010
Best answer: Stinker, I live in a house built in 1950, which I bought in 2004, that is NOT up to modern code. It doesn't have to be -- it only has to be up to the code of when it was built. When you do any significant renovations, the renovation will have to be up to the code of that moment. Basically my upstairs and basement were still to 1950s code; my livingroom and kitchen were to 1970s code; and one room on the first floor had 90s electrical so they could run their computers. We had NO TROUBLE AT ALL getting financing. However, because the electrical had not been upgraded in literally decades, we had to have $1500 of electrical work done before we could get the house insured. (We knew this from the inspection and split the cost of it with the prior owners.)
You may be having trouble finding out what standards would keep you from buying the house because I don't really think there ARE any ... the bank is concerned with whether you can afford the payments, not with the condition of the property. They don't care if you live there. (Frankly, they don't care if you run a crack house there as long as you pay on time!) The insurer will be concerned with the condition of the property (and your mortgage may be contingent on getting insurance) but if it's well-maintained, I wouldn't imagine it would be too much hassle to get it insured.
posted by Eyebrows McGee at 8:33 PM on May 29, 2010
You may be having trouble finding out what standards would keep you from buying the house because I don't really think there ARE any ... the bank is concerned with whether you can afford the payments, not with the condition of the property. They don't care if you live there. (Frankly, they don't care if you run a crack house there as long as you pay on time!) The insurer will be concerned with the condition of the property (and your mortgage may be contingent on getting insurance) but if it's well-maintained, I wouldn't imagine it would be too much hassle to get it insured.
posted by Eyebrows McGee at 8:33 PM on May 29, 2010
If you turn out to need a rehab loan and there is no structural damage you may be able to get a streamlined rehab loan. Streamlined loans are slightly less of a hassle.
posted by bleary at 6:53 AM on May 30, 2010
posted by bleary at 6:53 AM on May 30, 2010
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posted by stinker at 12:48 PM on May 29, 2010