How finished does a home have to be to qualify for conventional?

Question

What level of finish does a home need to be to qualify for conventional financing?

I'm looking at a home north of Seattle that is a two story home that is gutted on the first floor, and completely remodeled and finished on the second floor. This would be a live in flip property.

All the systems are updated, but no drywall hung on the first floor. I assume that I need the walls covered, but how much finish and paint does it need?

What's the definition of a kitchen? I lived in plenty of studio "micro kitchens" and survived, so what do I need? Just plumbing to a sink and some counters?

Are subgrade floors enough? Right now it has some hardwood floors, some plywood subfloor.

Basically, I would like to get conventional financing and get away with as little complete before closing so that I can do the regular rehab work myself. Yes, I thought of a 203k loan, but would rather not. Yes, I could do hard money and then refinance when it is all complete too. Does this vary by bank? Basically, what's the lowest level of finish allowable for conventional bank financing?

David Faulkner · Answer

What about locking it up with a purchase option, finish it enough to qualify, then exercise the option and purchase with conventional financing? The seller may not be willing to entertain this, but then again they might if you ask.

Bryan R. · Answer

It is going to vary somewhat between lenders and appraisers. Some adhere more closely to FHA guidelines than others. And the lower the appraisal rating the smaller the lender pool. I would shop lenders to find one that will work with you.

203b is another option. I'm doing one right now with plumbing issues (among others) where 203b was the easiest option. And even then the first appraiser wouldn't play ball without the water being turned on, but lender was able to use another one that was fine with that.

Standard things most lenders seem to want: Most health and safety items. All systems intact and operational. Plumbing, electrical, mechanical. Roof in decent shape. No holes in floors. Very few holes in walls. Operational bathroom and kitchen. Kitchen needs hot food prep (generally a range), a sink, and some cabinet and countertop space. You can probably get away without a lot of floor cover and millwork.

I think from that picture it is going to be hard to go conventional. Looks like it  at leasts needs some electrical/plumbing/mechanical, insulation, drywall...

Julie Marquez · Answer

@Dave W. @Brian Holland I didn't buy this house, but some lucky cash buyer got it for $330 and turned around to sell it at $570.

We did by a different unfinished house and we are fixing it up now. We had to use a construction loan and it worked out great. It was 3.75% for 30 years, with the first year being interest only. It is owner occupied loan. You can read about the deal in my journal.

David Faulkner · Answer

If you do the above, spend some money on a lawyer to make sure the contract is air-tight and consider setting up an escrow account to impound house expenses like property taxes, mortgage, insurance, etc. to ensure that they get paid during the option period so the owner doesn't just pocket the money and leave you with the liens after purchase. So, there are some things to be aware of, but it can be done if structured properly. I admit that I am no expert in these types of "creative finance" options, but there are some on BP that are and may be better to advise on the details.

Lawrence Smith · Answer

Yes banks definitely have stringent rules regarding financing  homes that are unfinished. The home must be "livable", electricity, heat, running water ect. You may can find a bank to finance the property, however you will just have to shop the property around.

Rich Vogel · Answer

Hey julie, you can look at it as all major parts of the house need to functional for the most part. So cabinets would need to be in. By the picture it doent look like it would qualify for a conventiona.  You could pm better pictures and i could give you a better guess i would look into hard money or private money.

Karen O. · Answer

I purchased a home that had no kitchen.  There was also no batk6h.  Thus no COO.  No one would give me a loan.  They all said I needed a kitchen and working bathroom. Unless things have changed, you may have difficulty getting financing.

Jacob Anderson · Answer

@Julie Marquez I will have to agree with @Bryan R. that it will be hard to get a loan on this house. I think that they have seen too many owners buy a place with an intention of fixing it up.....

I believe you will need to do quite a bit of work before you can refinance.

Shaun Weekes · Answer

@Julie Marquez

FNMA also has a great renovation program and it looks like this home would be perfect for this.  You can live in during construction and all aspects of the construction would be taken care of for you like FHA's 203K.  No MI if you put down more than 20% as well.

PM me or post on the thread if you have any more questions Julie.

Joe Splitrock · Answer

@Julie Marquez I don't think conventional has specific rules versus FHA which has many standards. I believe it is the individual banks that could have rules and the appraisal must support your price. Unfinished rooms could be an issue because they will not count towards finished square feet, so would affect value. I would talk to local lenders or local real estate agents.

How finished does a home have to be to qualify for conventional?

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