FHA underwriter wants expense breakdown

[Account Closed]

buyers realtor calls me today and says that Buyers underwriter wants to see a breakdown of my expenses invested in the property supposedly because the FHA guidelines now require this. I'm afraid they'll see the profit in the property and say no to the loan.

[Frank Uzzi]

John,

What is being requested from you is not uncommon when the Buyer is taking an FHA loan on a property you flip. The reason for the request is because the property jumped up in value in such a short period of time so the underwriter must document the increase. I would not worry about the "profit" being disclosed. What I would recommend is to prepare a 1 page "scope of work" which would list the general items that were replaced and an approximate cost.

Something like:

KITCHEN - Total $17,000.00

Replace all existing cabinetry with Maple Cabinets = $8,000

New Granite Countertop = $4,000.00

Stainless Steel Appliances = $5,000.00

MASTER BATHROOM - Total $5,000.00

Replace all existing tile and fixtures $5,000.00

LANDSCAPING - Total $3,000.00

Spring Cleanup and thatching, seeding etc.. $500.00

Paver walkway installed $1,000.00

Outdoor lighting replaced, re-wired $1,500.00

I think you can get the idea from this. You can be as detailed as you want but a general snapshot of the project is all that is required. I would recommend that you not provide every penny as that is not necessary. Remember that the underwriter just needs to justify the increase in value in a short period of time. The fact that you make a profit is not going to prevent the Buyer from getting a loan. The value is what needs to be established. I would also recommend that when the Buyer's mortgage company sends the appraiser out to the property, you be there to meet the appraiser and explain all the upgrades. Show the appraiser proof in pictures, budgets etc.. to help the appraiser arrive at the new higher value.