First Deal Financing Hurdles

[Aja Leafe-Hall]

Hi there, I am in a purchase and sales agreement on my first deal. It is a single family home in need of rehab in a rural area. I have been thinking of it as a BRRRR deal. I am using my HELOC for the downpayment and rehab. The owners are willing to finance until the work is done on really nice terms and I just discovered why: I am 2 days from the end of my inspection period and it has just come to my attention that the septic system (lack of info about it) is a reason that the sellers were unable to obtain bank financing. I am out of state and my dad is in NH trying to line up a septic inspection. We had to get an extension already for the inspection period because the house was improperly winterized and needed plumbing repairs before the inspector could go through. The sellers paid for that. Now they are unwilling to give us more time to do the septic inspection, because our closing date is set for two weeks from now. This is my first deal. I did not know a lot about what prevents a bank from financing property. I assumed that the stairways being too steep were the only (fixable) impediment here. I need to be able to refinance for this plan to work, because I am putting equity from my home at risk. Any aDVICE ON HOW TO PROCEED? THANKS

[Kerry Baird]

Having just worked on a house that didn't qualify for lending, and so we also used seller financing, I have this perspective:

We started with the insurance, as my Realtor suggested to me.  That was a good starting point, as the insurance wanted certain items, such as the roof condition, to be insurable for them.  

Additionally, Fannie Mae, Freddie Mac, FHA and VA developed classification of condition from C1 to C6. Most lenders require c4 or better. Google this and compare to your property.

Fannie Mae, or FHA who is in my opinion the toughest lender when it comes to condition, only require a property is safe, and secure. For example it must have hand rails, and no peeling paint, no holes in the walls or floors, but aside from that, it is rare to see properties get denied because of condition. They will list the repairs you need to make to get the loan approved.  

In our situation, the VA (quite strict) lender did a hold-back of our cash-out funds until their inspector verifies that the remaining siding is installed.

To recap: insurance, condition at a c4 or better, or...have seller agree to carry for a very long time so that you have time to cure any issues.