FHA Changes Mind on Mortgage

[Daniel Leake]

I was about to purchase a house in southern Virginia. The house is older (1907). The previous owner has done some repairs--kitchen and bath rebuilt, and most walls replaced.

It's still in pretty bad shape--thus the 35k price tag. I see it as a perfect starter house. (As a side note, it was condemned for a short time because of some unpainted portions on the outside of the house. I talked with the city--they agreed to lift the condemnation and make it "livable with violation" and that once I fixed the violations, all that would go away.)

This was to be my first home. I had pre-qualified for a FHA loan with VHDA assistance (basically to cover what I would have had to bring to the table). I signed an offer, loan application, etc.

The mortgage company's inspector did an appraisal and appraised the house at 79k. (The city has it assessed at 57k for tax purposes.)

My lender called last week and said the FHA was not going to accept the house as collateral on the loan because of the poor condition.

MY FIRST QUESTION:
If it was appraised by their appraiser at 79k, where would this new decision come from?

MY SECOND QUESTION:
My lender mentioned he would look for some private company to lend a partial amount to allow me to fix up the house enough to work for the loan. Does anyone know what this would look like, or have experience with anything like this?

Thanks for your time!