Does Going With Conventional Financing Avoid Having To Make Required Repairs?

If FHA/ USDA/ VA loans require repairs to be completed prior to closing, why not just switch to a Conventional Mortgage? As long as the buyers qualify, we won't have to worry about doing any repairs to the home.  Besides, many of these homes are foreclosures, and many banks, Freddie Mac, Fannie Mae, HUD, and others won't allow the properties to be touched prior to closing.  Wrong!

The appraisers have been going through a scrutiny as of late.  The level of responsibility to report accurate and concise information of the homes, has increased exponentially.  Appraisers are being told that they can be held liable for any unreported issues, so appraisers are now required to take pictures of every room in the house, and they must note any unusual abnormalities that can effect the marketability of a home.

They must give the home a Quality rating, too.  They are given a rating of  C-1 to C-5. A rating of C-3 is considered average.  When the Conventional appraiser reviews the home, they are still taking pictures and making notations of things like: Stains in the carpet, water stains in the ceiling, holes in the wall, missing molding, broken windows, water in the basement,etc.  Even though none of these is structural in nature, banks are requiring these items to be fixed because they are concerned about safety and soundness issues with the property.  The average quality rating is expected, and anything below that rating requires repairs to be made before the buyer can take possession of the home.  Once these repairs are completed, the appraiser must go back out to the property and reinspect it for the bank.  The appraiser verifies that the Quality rating is up to average.

There are two ways that this situation can be dealt with.  Either the buyer does the repairs on a home that they don't own, which can be time consuming and unacceptable to a seller, or they can apply for a rehabilitation loan.  A rehab loan is one where a buyer obtains an estimate of repairs from a contractor, our bank holds the amount of money in an escrow account.  Once the required repairs are complete, the bank pays the contractor direct for the repairs, or reimburses the buyer once they have been shown that have been completed.  Most lenders can't do any type of Rehab loans, or they offer the FHA 203K, which is arduous and expensive.  I can do a standard conventional rehab loan, requiring as little as 5% down payment.  Regardless which way you want to go, please know that switching the type of financing to Conventional doesn't promise any different outcome.

Andy Williams
President
Abacus Regional Mortgage
484 695 5972
NMLS # 118317
www.abacusmort.com

Ask the "Mortgage Man": Can I buy a house if I just declared bankruptcy?

Ask the "Mortgage Man": Can I buy a house if I just declared bankruptcy?: I have heard this question over and over again, and until now, I was unable to say yes.  The old tried and true method of approval is: 2 yea...

END TO AN OLD TRICK

Have you or anyone you know ever moved into a different home without selling the current residence?   Did you claim to be renting your residence or selling it, all to get the best terms for a mortgage on an investment property? For years, many people used this ploy to get better terms for their loans.  This went on for years before lenders became smart.  When I got into the industry in 1986 as an underwriter, I was taught what to look for to determine true occupancy in a property.  With a few general questions you can determine a borrower's intentions with regards to the property.  If their commute distance from their current job to the subject property is 2- 3 hours away from the property, it is obvious that they are looking at the property as either a 2nd home or an investment property.  If they claim that the home will be a 2nd home, but it is located in downtown Allentown, you can conclude that it is to be used for investment.  To be considered as a 2nd home, the property must be located in a resort area or community where it is common for home owners to use them on weekends. If a buyer is moving from a home in which they owe more than the total price of the new home being purchased,  you can assume that the are either going to let their current home go into a short sale or foreclosure.  In 1983 in Houston Texas, the oil industry suffered a bad slump.  Many workers in that area were effected by the slump, and may lost their jobs.  Prices of homes dropped significantly, where many builders went bankrupt.  Buyers were purchasing the exact same home to theirs, in the same development, for 60% less money.  Why pay on a mortgage for a home that is worth 1/3 of what they owe on the home? Many claimed they were renting their current home and purchasing a new home.  When they completed the sale, they walked away from their old mortgage; therefore, the banks lost significant amounts of money. This trick worked well for a time, but the banks eventually put a stop to that.

Since the mortgage crisis of 2008, Fannie and Freddie Mac implemented changes in underwriting
guidelines which help to keep these fraudulent activities from happening.  If a buyer states that they will be vacating their current home and buying a new one, they must qualify with the new home mortgage as well as the old home, too.  If they brandish a lease, underwriters will not count any of the rental income until a borrower can provide proof that the home has been rented for 6 months.  This means that the buyers will have to vacate their home and rent for a minimum of 6 months before they can look to buy unless they qualify with both properties in their name.  Furthermore, if their current home doesn't have at least 30% equity, the borrowers must provide proof that they have 6 months mortgage payments on both properties saved in reserve.  Depending on the cost of the new home, you can be looking at tens of thousands of dollars needing to be shown in savings, 401k plans, IRAs, etc.  What seemed to be a fool-proof plan years ago, is becoming more and more difficult to pull of in today's market.

Andy Williams #118317
President
Abacus Regional Mortgage NMLS #112984
484 695 5972