Update on Property ..... $60,000 max and FHA guidelines ......

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Update on Property ..... $60,000 max and FHA guidelines ......

Michael Dunn
Olive Branch, MS · Member since 2013 · 452 posts · 10 votes

I just got a message from my Lender , and found out that I qualify for a maximum loan amount of $60,000

I will be going the Conventional Loan amount of 5% down , with the standards for the house " mandatory " repairs adhering to the FHA guidelines

So what I am wondering is ..... This property " needs " a decent amount of work done to it . The thing is , this property is in a Trust , and there is a total of $52,000 that HAS TO be paid out ..... 1. The payoff of the house is $29,000  2. Three people associated with the house get a total of $20,000    3. The Lawyer Fees are $4,000   4.  Closing Costs are $2,500  5. Appraisal cost of $500    

So that leaves a total of $55,000 for costs , with the Max loan amount of $60,000.  My down payment of 5% will be $3,000

This leaves $5,000 left over for repair costs, and by reading up on what the FHA guidelines are and what they require for a house to Pass and be approved for " liveable " condition, I will almost certainly need more than $5,000 to do all of the repairs .

Can someone shed some light please, as to how strict the FHA guidelines are , and what they will require , that Has to be done . Can I paint the inside and outside of the house, as I have been in the contracting business for 12 years ( but as of right now, I am NOT Licensed or Insured )

Just looking for some help and guidance, before I have to shell out $1,000 ( for the Inspection and Appraisal ), and knowing what I can expect to have to have fixed, and by knowing this , I can see how much more over the $5,000 I will likely need .

Thanks so much - Michael

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  • Joshua Beall
    Realtor / Listener / Coach · Charles Town, WV · Member since 2015 · 46 posts · 23 votes
    11y

    I'm a little unclear on what kind of loan you're getting. Is it FHA or conventional? You mention you're "going the Conventional Loan amount of 5% down," but that "repairs adhering to the FHA guidelines." So is this a conventional loan and the lender has told you that they're going to use FHA guidelines?

    I also didn't quite follow your numbers, but right off the bat I have a question: is this a renovation loan? Just because you're qualified for a max loan amount of $60k doesn't mean you can just buy the house for $55k and spend the difference ($5k) on repairs. It needs to be a renovation loan that is specifically designed to cover both purchase and renovation costs. The FHA 203k loan is an example of such a loan.

    You mentioned that you have been "reading up on what the FHA guidelines are and what they require for a house," but you still have questions. Do you have questions about a specific guideline? What have you found unclear?

    Generally speaking, FHA requirements are supposed to ensure the health and habitability of a property. Practically speaking, that means that any safety issues (unsound structural items, unsafe wiring, etc.) and "broken" systems of the house (plumbing, heating, insulation, etc.) will need to be fixed. If the house is broken, you won't be able to just paint it and expect it to pass.

    When I last had an FHA 203k inspection done (which was five years ago), I believe the inspection only cost me $350. I'm a little surprised to hear that you're being asked for $1000 up front. You don't need to get the inspection and appraisal together. And does that $1000 cover anything else? If you're unsure about the property, I would get the inspection first and then put down whatever appraisal/application fee the lender is requiring.

    And lastly, I have a feeling you're right: $5k is not going to go very far, and even though I don't know a thing about this house, I suspect you're going to need more than that simply because $5k won't pay for much work. You may need to renegotiate your price, or find a better deal.

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  • Michael Dunn
    OP
    Olive Branch, MS · Member since 2013 · 452 posts · 10 votes
    11y

    Hi Joshua,

    I really appreciate your reply

    Here's a bit more about this property , and the way in which my Lender told me that this can even work ....

    The property will NOT go FHA , and therefore I was told, my only other option is to do a Conventional Loan with me paying 5% down. I was told that they adhere to the guidelines for a property meeting " Liveable " standards / requirements via the FHA's guidelines.

    The property is a distressed property , and needs things like new flooring, water heater, appliances, painted inside and out , etc.

    The AC unit needs replaced too, but I'm not sure if I could get by with Not replacing it, and putting window units in it instead ?

    I'm not to sure myself, as to how the money left over ( the roughly $5,000 ) will be " given " to me , to use it for the repairs ...... escrow account I guess ?

    Since this is Not an FHA loan , do you think the Lender will let my dad and myself do most of the work, given are experience in remodeling and repairing houses.... even though neither one of us are insured or licensed ?

    Is there a " Do-It Yourself " policy out there, that lets people who can show they have experience at doing certain repairs/projects, actually do the work themselves /

    Thank you again for all of your time and your help,

    I very much appreciate it - Michael

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  • Joshua Beall
    Realtor / Listener / Coach · Charles Town, WV · Member since 2015 · 46 posts · 23 votes
    11y

    These are important questions you're asking, and they really all need to be answered by your lender. You should call them up and ask them, just like you've asked here, and they can give you the straight scoop.

    That won't stop me from speculating, though :-) I think you will find that:

    1. Unless they have clearly explained this is a renovation loan, that they are expecting the repairs to be done prior to closing.
    2. That if this is a renovation loan, they won't permit you and your dad to do the work.
    3. They won't require AC, but they will require heat.

    Once you call them and get the information straight from them, be sure to let us know what you find out!

      -Josh

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    1. Wayne Brooks
      Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
      11y

      Assuming the property appraises, they will loan you95% of the purchase price, period.  The repair money will need to come from you.

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    2. Frank Woodin
      Investor · Crystal Lake, IL · Member since 2014 · 64 posts · 17 votes
      11y

      As it sounds from your original post and reply that this is NOT an FHA loan but rather the bank is using the FHA guidelines as their assessment standard for the loan. IF it is an FHA you won't be able to do the repairs yourself, but if the bank you are using is lending for their own portfolio then they MIGHT allow it but that is something you will have to work out with them.

      If you want a list of FHA inspection standards you can just google it and several sources will come up on the first page. The gist is that all mechanicals must work, except as stated before the AC.

      I think you need to bring these questions to you lending broker/bank to see what the information is from the horse's mouth so you can go forward confidently and not loose money on inspections that could have been avoided.

      Best of luck!

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    3. Michael Dunn
      OP
      Olive Branch, MS · Member since 2013 · 452 posts · 10 votes
      11y

      Hi Frank,

      I appreciate yours , Wayne and Joshua's replies

      Just wanted to mention and ask a few things please....

        1. I read the following statement ....
         " There are several different types of properties that qualify for FHA financing. The building may be a detached residence, a semi-detached residence, a multiplex, a row house, or an individual condo unit. "
        The property I am trying to purchase, has already ran into an issue , with it being an " attached " ( by roof line only )  BUT de-thatched from the main house type property
        And from the above statement , it seems that this property should qualify for an FHA loan .... but I have been told that it won't , since there are no other " Similar " properties in the area to compare it to for an appraisal  ?

      2. My Lender is going to base the house passing Inspection , based on the guidelines that the FHA uses.

      But it will NOT be an FHA loan that I use, but a 5% down payment conventional loan.

      Given this .....  Do you think that the Bank/ my Lender will likely allow my dad and I to do a majority of the work , given both of our experience in remodeling and repairs ? ( he's been doing it for over 30 years, and I've been doing it for over 12 years )

      And if they allow us to do the majority of the work .... would they give us  4 - 6 months to complete all of the mandatory repairs ( AFTER closing ) ?

      3. Since the AC is not working on this property, and the fact too, that a new one will cost around $3,000 - $3,500 , and I am needing to save every penny that I can ( as I will likely only have $10,000 available to complete any and all of the work that the Inspector says HAS TO be done to meet the FHA guidelines ( a new roof is possible too ... a $5,000 repair right there ).

      So will they let you put in window units for Air Conditioning ?

      Thanks again for everyone's input and help

      This week is crunch time , and I'll likely have an Inspector come out by the end of the week..... just want to have a sense of what I can expect to happen beforehand

      Thanks so much - Michael

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