Water must be on for Fannie Mae to back loan?

[Jeff Brower]

Hello all,

I am currently in contract on a HUD home that was not winterized and the utilities are off. There are breaks in the copper piping in the basement so the water cannot be turned on. There are no toilets installed in the home. From the start I asked my local credit union if they would loan on the home without utilities on and they did not mention any issue. Now that the appraisal has come back noting 'no toilets' underwriting is denying the loan. They say it must have at least one 'functional bathroom'. I asked how it can be functional if the water is not on, which I had stated from the beginning.

I already have an estimate to replace the entire plumbing system in the home. Even with the utilities off my appraisal came back 'as-is' at 20% over the contract purchase price. The home exceeds the 2% rule and I don't want to miss out on this purchase. I already have $1200 invested in ernest money, inspections, and appraisals. I asked them if a video inspection of the sanitary sewer lines would suffice, they said no. I asked them if a repair escrow account would suffice, they said no.

As we know I cannot do any work on a hud home until after closing, also hud will not repair a thing. I am stuck here and if a functional bathroom is required then I will lose this house. If it is a requirement then I will be going after the bank to compensate me for funds lost as I stated that the water was off from the start over 2 months ago.

They keep stating that it is a fannie requirement to have a functional bathroom. Is this true? If so can anyone reference where this is stated? I want to say that this is an additional overlay but the loan officer keeps saying that it is required by fannie mae.

[Richard C.]

You're attempting to conflate two issues.

1.  The utilities not being on is one thing.  As noted, that in theory is OK.

2.  The bathrooms not being functional, EVEN IF the utilities are on (as by not having toilets and having broken water supply lines) is something very different.

You asked the lender about #1 and were told it was not a problem.  You don't have grounds to be upset that they won't make the loan now that the issue is #2, something they weren't asked about.

A better headline for your post would have been, "Home must have toilets for Fannie Mae to back loan?"  

Your best bet it so do as David suggests above, and ask for a portfolio loan. Almost all small banks and credit unions offer them, as well as many larger banks. It will probably be a 3/1 ARM.