Please offer input on a unique lending situation

[Marc Knapp]

Dear BP Community:

We are buyers on a property where the appraiser unexpectedly appraised the property to be in Below Average Condition. Our lender informed us that in order to qualify for a conventional loan, the property needs to undergo all repairs outlined in our purchase agreement in order for be appraised as 'Average' ( appraiser stipulated that the repairs requested in our contract would satisfy the necessary items to bring the property up to Average Condition). Our lender also informed us that the biggest issue that raised the red flag and qualified the property to be in Below Average Condition is the detached garage which needs major repair.

Our dilemma:

Our lender gave us the option to buy the property all cash and refinance instead of it being considered a purchase. This option would raise our loan points by .625 extra points (not a major hike) and we would incur roughly $1,000 of extra expenses at closing. After we buy all cash and make the repairs, appraiser would re-appraise the home and we would get 75% loan to value (cash purchase price) on the property. 

1. What do people think about this option?

2. As of right now, we are not in favor of the delayed financing option. What other options exist? 

3. What have other fellow BP community members in similar scenarios elected as next steps?

Thanks all very much in advance!

Ana-Maria & Marc

[Dax Gurr]

the way you are describing is the way that we buy all our properties. If you buy it with cash then when you refinance you can take out all you capital ( up to 20 or 25% Loan to value), get a great long term rate and do it again... assuming this is an investment. If you are buying it as an owner occupied you can do an FHA 203(k) which will allow you to buy it and then have the bank loan against the future state of the house. These types of loans are a pain but may be an option. Another option is talk to a local credit union and have them do a construction loan. This allows you to buy the house with the first draw, then take out additional draws to finish the repairs.

If the seller is a private person you may be able to do a short term Wrap ( basically this is you wrap your mortgage around theirs).  Then when the remodeling is complete you can refinance and pay the original seller off.   They may be interested in this because they get a better price.  

Another option may be to have the appraiser give the garage no value.   As long as it is not a safety hazard they can do it this way.  You will have to repair the other stuff to get it up to average.  The appraisal my be lower but it will be better than paying all cash if you dont have cash.  

Best wishes!