No Carpet, No Kitchen, No Loan!
In light of the changes in conventional financing guidelines, FHA loans have once again become a popular choice for home buyers. In the good ol days, (heck, that was just a few years ago) almost anyone could get 100% financing on practically any home. Not so, today!
Today’s savvy buyers understand the market leans in their favor. However, financing may not. While showing homes in the last few weeks, buyers who are looking for a deal and most are – find the deals may have faults which prevent traditional financing.
Little faults, like – no kitchens – seriously, a bank owned home with the kitchen stripped. No cabinets, no countertops, no sink – dishwasher, stove -gone! This was a lovely house and a great price, but the average home buyer has no chance of having their loan approved by FHA or conventional, according to my lender. Of course, this buyer was going to go FHA with 3.5% down or conventional with 5% down. In either case, the bank would not approve a loan for the home without a kitchen.
A few more homes later, another problem, no carpet. Again, FHA will not finance without flooring. It’s a livability issue! I’m sure it also has to do with the bank wanting some security that the home they finance will indeed be livable and once they hand over the funds, they have no idea if the homeowner will have the repairs completed.
These homes can be financed with an FHA 203K loan, which allows for the buyer to include the cost of repairs into the loan and all projects completed by an FHA approved contractor. The process is a bit more difficult and time consuming, and comes with a higher interest rate, but is a good alternative to turning down a home which is priced right for the repairs needed. While finding deals may not be difficult, financing may create a roadblock.
This is just one of many reasons a home buyer should know their financing options upfront!
Discussion
Laurie - Where's your beautiful picture? I'm holding my breath for you! Your are absolutely correct - the guidelines need to change. The longer the homes stay on the market, the more damage is likely to ocur to the property. I do understand the reluctance of the banks to loan on these homes, but we need to get these homes sold.
We're holding our breath with a bank REO listing that the "missing elements" will be negotiable in order to get the fha loan through. I hope that FHA/VA make changes to accomodate the market reality, but if not, buyers need to consider saving a bit more $ for conventional financing. Great info for buyers wanting foreclosures, but short on cash, Paula!
Thesa - Thanks! It is a problem most home buyers using minimum down payment don't realize. They love the home, but can't get it financed with the loan they want. Last week the 203K was 1% higher interest rate, then once you add in the cost to rehab, you may not have such a great deal.
Jen - Sometimes a higher down payment will work for the lender, not always. Cash buyers work, a 203K loan or private financing.
Paula you are so right - just today I had a buyer call me and want nothing but bank owned homes.... upon discussing these exact issues they made the decision to look at their price range rather than just bank owned homes....
There are a lot of greats out there - and having a REALTOR that knows what will work is giving the buyer a leg up on the process... good info
So what happens to these bank-owned homes when buyers can't get financing (due to no kitchen, carpet, etc)? Just wait for someone to come along with a larger percentage down?
Paula, thanks for the very informative article. My husband and I are currently trying to buy a second home that has no kitchen and we are having trouble getting a bank to finance the loan. We have 20% down but because it's a second home, it is my understanding that the fha rehab loan does not apply. Any suggestions? Thank you!
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