Can't cope with buying, can't cope with renting

November 22, 2011 6:09 PM

I need help getting a mortgage on a property that needs minor repairs.

I'm currently under contract on a house and it's a big mess.

Problem #1: The appraisal came back with a value higher than what I would be paying for the house, but with conditions. The conditions were minor repairs they wanted done. I wanted to negotiate with the seller to do the repairs, or (if that didn't work) pay to have them done myself. The bank said that even if the conditions of the appraisal were met, they still wouldn't make the loan. (Huh? Can someone explain this to me?)

Problem#2: My realtor advised me to go with a renovation mortgage on the house. I really, really, REALLY don't want a reno loan. However, I really want the house and don't see any other option. I'm in process with Wells Fargo for a conventional renovation loan (not FHA203k or FHA203k Streamline). I was hoping this would at least save some red tape by not doing the FHA part of it (I don't want the house to have to meet FHA requirements), and was advised that since I'm putting 20% down, it wouldn't make sense to do FHA203K since they require mortgage insurance on a 30-year loan no matter how much you put down.

Problem #3: As part of the renovation loan process, I had to get bids for the work to be done from a licensed general contractor. I only wanted bids on the items that were called out on the original appraisal. The contractor added a lot of "recommended" things to the bid--i.e, if I want to replace the water heater instead of just moving it, it will cost $X more. That would be well and good, but the contractor sent the entire thing including the recommendations to Wells Fargo. I find this completely unethical, since now their appraiser will be looking at those items to make them a condition of the loan.

I know a lot of people will want to tell me to just walk away from the house. That's a valid option, but the problem is that I know I will face these issues on any house I am interested in--the types of houses that I like in my price range are ALWAYS going to need at least some minor work. I paid for a home inspection on this house and there were no major problems, or else I wouldn't have gone forward.

I have good credit (high 700s) and am putting 20% down. I just want a regular, 30-year fixed rate mortgage. Is there some option I haven't considered? How likely is the Wells Fargo appraiser to require all the crazy "recommended" crap that the contractor suggested? If you bought a house that needed minor (or major!) work within the past year, how did you do it? (The time frame is important, because appraisal underwriting never used to be this picky.) I can't help but think that the only way to buy the type of house I want is with cash.

posted by Violet Hour to Home & Garden (6 answers total)

I'm in the process of selling a house. The inspector came back with a list of items that needed repair (about $3k total). So, I repaired them, because I want to make the sale. Your buyer could do the same, you could even compensate him/her through the price if the house means that much to you.

I'm assuming you've dumped the bank that said they wouldn't make the loan anyway.

And, have you looked into going to a credit union?

Lastly, when you say "My realtor" are you talking about a buyer's agent? If not, you might want to find a good, experienced agent to advise you.
posted by tomswift at 6:16 PM on November 22, 2011

Response by poster: Yes, I do have a buyer's agent, but I don't trust them. I would get rid of them if I could do so at this point in the process, but of course I can't.

I have dumped the bank that wouldn't make the loan anyway. (Well, I still have my checking account with them, but only because I can't move it while I'm trying to get another loan. You bet I will switch as soon as this is over one way or the other.) Before the bank said they wouldn't make the loan, the seller was considering making repairs, but now that they won't the seller has no motivation to make them. I don't think there's any hope of getting any help from the seller on any of it--they're already mad that the closing is extended to try to get a reno loan, and wouldn't have allowed that except it was in our contract.
posted by Violet Hour at 6:27 PM on November 22, 2011

Here's my thoughts from the seller's perspective. They aren't going to dump you (and, actually, can't dump you, until whatever timeline is specified in the offer regarding securing the loan passes). Continue to go after the loan, and don't assume the seller won't make the repairs. Now that the problems have been identified, they are going to need to, at least legally, disclose them to a new buyer.
posted by tomswift at 6:45 PM on November 22, 2011

This sounds awful. The house I recently bought needed a ton of fairly important stuff done. I used a mortgage broker. The bank did not receive (or ask for) an inspector's report. They did do an appraisal, which was pretty superficial. (Speaking anecdotally, I have not heard of an appraiser demanding repairs.)

When the sellers agreed to compensate me for problems found at inspection, we reduced the sale price instead of giving a closing credit, so the paperwork didn't contain any cause for concern by the lender.

Having looked into renovation loans, I suspect they're a good way to get mired down the line when you want to solicit bids on a job, or to do a job yourself. Even a small change is going to be difficult with all that red tape. If you don't need the extra $ that is included for repairs in a 203(k), I would avoid it like the plague.

Here's the part where I say you should maybe walk away, for the sole reason that this particular transaction sounds like it's gone off the rails. If you don't want to walk away, my next move in your shoes would be to call up a mortgage broker and ask them to find you somebody that will issue a non-renovation loan with all this information on the table, and if the sellers agree to remedy the known issues.

(It would help to know what state you are in (geographically), and what state the house is in. (physically))
posted by zvs at 9:56 PM on November 22, 2011

Response by poster: All parties (including the house) are in Georgia. How recently did you buy a house?

I'm not doing a 203K, for the exact reasons you mention. I'm in process on a Wells Fargo renovation mortgage, which isn't an FHA product. However, it's not much better: you can't do it yourself and you have to get contractor bids before the loan is approved. It is possible to change contractors after closing if you don't like their work, but it is hard. What you can't do is lessen the scope of the work--if the appraisal calls for replacing the windows, for example, you can't decide not to replace the windows after closing. That said, this seems to be true of all mortgages now, not just reno.

I'm sorry to threadsit, I'm just so frustrated.
posted by Violet Hour at 10:39 PM on November 22, 2011

Yeah, that's what I imagined. I'm not familiar with Wells Fargo loan products, but I imagine the drawbacks are largely the same.

I bought a house three months ago, in NY State.
posted by zvs at 8:38 AM on November 23, 2011