Offer with conventional loan declined, what else might work?

Question

Hi Folks,

Seller declined our conventional loan offer (225k, full asking price), seller and her agent don't think the property will pass appraisal/inspection process (needs roof/siding/decking work). They are holding out for a cash offer, but if they don't get it they said they might work with us.

We are pretty hot on this place, so I'm just wondering about various financing options:

A 203k loan would be a good fit, but I currently have an FHA loan, so can't do another one right now. Any other loans out there like an FHA?

Our conventional loan offer was 5% down, instead of the typical 20%. Our loan guy says it doesn't matter because the same appraisal process will happen regardless of the amount down, but I'm wondering if more down would make a difference.

I've never really explored hard money or other such routes, so I don't know if that would be an option. We don't have a lot to put down (maybe 20k tops going on current funds)

It is a good deal, but not a crazy below/off market deal, so not sure investors would want to jump in and fund. Seems like a great place to fix and hold.

I could go max out my friends/family/crowdfunding options, but that probably wouldn't get me much beyond 20-30%...

Anyhow, let me know if I'm missing something in terms of a strategy that might appeal to this seller.

Thanks,

-Orion

Val Csontos · Answer

@Orion Walker I would move on and find a deal that is  "easier" for you to execute. In order to find (and successfully close on) a deal that is worth both your time and effort, and money,  as an investor, you probably will need to generate enough leads:

Talk to enough motivated sellers, estate attorneys/ bank REO reps in your target area, to see if there are motivated enough sellers for you to talk to.  And don't quit until you have  at least two or three possible properties with motivated sellers lined up.

This way you are not "chasing" sellers/deals rather they will come to you. (you will come a cross a lot more confident in your offers or just talking to sellers when you have at least  two more nearly as good deals to make)

The above action will dramatically increase your chances to be able to negotiate much more realistic deals for you that you will be able to perform (close) on.

If I was you i would also do some reading in creating financing technics as they can come handy to acquire properties. For example when i first started out i had asked about 20 realtors i my area if i could borrow their commission (buyer agent's) and just pay them 60 monthly payments out the the rent cash flow, and 19 said no but 1 said yes. So with that agent i was able to buy over a dozen properties and use his commission to pay the closing cost (3%) so i could buy houses with almost no money down.

Good Luck to you!

Jeff Trevarthen · Answer

Have you tried asking the seller to finance?  Maybe something short term until you can fix it up and refinance?

As others have mentioned, don't get hung up if it isn't going to work.

Good luck,

Jeff

Mike Martin · Answer

@Orion Walker

Super happy I could provide advice that was valuable.

Mike Martin · Answer

As an alternative to a 203k you can look into a Fannie Mae Homestyle Renovation loan for the repairs.  This is not to be confused with a Homepath loan which is only available on Fannie Mae owned property.  More lenders are offering the Homestyle renovation program in the past few months.  Call several mortgage companies and you will turn up the loan program.   If needed I can work through our channels to find a Homestyle lender in California, assuming that is the location of the property.

Additional thoughts, you might not have the appraiser comment on the deficiencies, depends on how deteriorated.  Conventional financing guidelines are vague when an appraiser has to call the various items you mention.  Generally they get called out when they are a threat to the safety, soundness or security of the property.  Different appraisers will have different thresholds of what they feel is acceptable.  Big hole roof should always be called.  Tired roof that is not leaking is discretionary.  The Homestyle program could be a fall back if you can get the seller comfortable with the idea.

Orion Walker · Answer

@Val Csontos, I literally had a dream last night where I was explaining your realtor payment plan to someone. I guess I really do have RE on the brain lately :)

Thanks again for the ideas/info.

Jon Holdman · Answer

Are you trying to buy a personal residence?  You're not going to get an investor loan of any sort with a 5% down payment.

If you're trying to buy junky properties that aren't going to pass muster for a conventional lender you need to like up some other resource.  Private money if you know people with money, hard money if not.  These are about as close as you can get to cash without actually having cash.  Its expensive.  And, if this really is a residence, you're not going to get hard money.  Even savvy private lender will probably reject a residence, thanks to the heavy regulation of such loans.

Albert Bui · Answer

HI Orion,

As long as the roofer will give you a roof cert showing it will "certify," for now that will be sufficient but usually the roof is not an issue unless it is announce via written statements on the appraisal or  disclosed by the seller through the seller disclosure statement.

As for the decking unless its visibly dry rotted with an indication of extreme termite damage that might have spread to the structure of the home you should be fine with a bit of deck damage but it depends on the extent you're referring to.

When you refer to the siding, how much damage are you talking about to the siding? I've funded loans on properties with damaged siding as well it just depends on what the appraiser mentions on that appraisal report or if the underwriter somehow gets a hold of your inspection report through unscrupulous means and its revealed there are issues with the siding. Hopefully you dont have LP siding since I've seen it commonly get water logged and start to split at the seams.

Todd Eldridge · Answer

My company just rolled the only VA Renovation loan program in the country.  It's very similar to the FHA 203K streamline loan program in that it is limited to $35,000 total funds for the renovation and does not allow "major" projects.

It's a great program though.  Let's say you have a veteran buyer that needs $20,000 to upgrade the kitchen and bathroom.  We lend 100% of the appraised value after the repairs are completed.

I am totally excited about the prospects of this program.

Good luck.

Joe Impagliazzo · Answer

@Orion Walker

Can you qualify to refi your current FHA loan into conventional?  How far away is this property from the other?  Is there a possible job relocation for this property that would allow 2 FHA loans?  Also if you can prove you needed to upsize or downsize sometimes you can have 2 FHA loans.

Orion Walker · Answer

@Mike Martin Thanks again for the information about the Homestyle loan. We are now in escrow because of that loan option. Big Thanks!

Offer with conventional loan declined, what else might work?

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