Ask the Pack: mortgage question

[Lachien]

Has anyone ever dealt with banks and appraisals that come back "subject to repairs" in order to classify a house as C4 and successfully got a standard mortgage loan? I'm told Fannie/Freddie requires C4 (scale is from C1 to C6 I believe, C6 being uninhabitable).

I'd prefer to get a standard mortgage and self finance renovations on the house I'm trying to buy. I've heard banks in some circumstances keep an amount required for the "subject to" repairs in an escrow to be paid to the contractor later and issue the standard loan. House is in Jackson area. Some questions for the pack:

Has anyone had any experience with this path towards a loan?

Will most banks/underwriters finance a standard loan with a "subject-to" appraisal and the contingent escrow?

What banks/underwriters are best to deal with and the most flexible to work with in the Jackson area?


Thanks in advance for any guidance and info.

 

[ababyatemydingo]

Nugdawg, you're up

 

[T-TownDawgg]

There used to be a Gov't program (203c, can't remember if it's still active) to put aside funds for repairs. We looked into it, but lots of paperwork, red tape and you had to hire a GC.

We ended up going through an Ag Credit union. Higher rate, paid for repairs ourselves, and refinanced when done based on a new updated appraisal and came out ok. They were willing to loan the cost of repairs in escrow and refi at the end, but it got a little complicated, and would be subject to a strict schedule. We wanted to do a lot ourselves, and on our schedule, but not many people can do this.

Our house needed quite a bit of work. We learned to talk to several institutions. Our bank, whom we've been with for years, told us the underwriters were not gonna go for it. Walked into the credit union off the street on a 3rd party recommendation and they seemed more than willing to help us.

 

[Lachien]

This sounds very similar to my situation

There used to be a Gov't program (203c, can't remember if it's still active) to put aside funds for repairs. We looked into it, but lots of paperwork, red tape and you had to hire a GC.

We ended up going through an Ag Credit union. Higher rate, paid for repairs ourselves, and refinanced when done based on a new updated appraisal and came out ok. They were willing to loan the cost of repairs in escrow and refi at the end, but it got a little complicated, and would be subject to a strict schedule. We wanted to do a lot ourselves, and on our schedule, but not many people can do this.

Our house needed quite a bit of work. We learned to talk to several institutions. Our bank, whom we've been with for years, told us the underwriters were not gonna go for it. Walked into the credit union off the street on a 3rd party recommendation and they seemed more than willing to help us.

I'm trying to avoid the red tape also and prefer the flexibility to go at my own pace and pay for the repairs on my own. I've done it successfully before but I guess the house was in a slightly better shape.

How did your credit union work around the home's condition? Did they keep the loan in house or something to avoid Freddie / Fannie requirements?

Appreciate the info

 

[Bully13]

Subject to repairs is on the seller. Financing ain't gonna take place till seller gets his property up to speed.

 

[T-TownDawgg]

Subject to repairs is one thing. That can be negotiated in most cases. Our house had an addition that wasn't finshed and needed a whole new septic system relocated. Yeah.

The loan was kept in house. Even though our credit is perfect and had no debt, it was not a prime loan and the interest was about 1% over a normal mortgage, and we paid all closing costs. We also had to become a member and put up 1000 bucks in stock purchase. We actually got a 500 dollar divedend check off it this spring. When we were done, we got the cetificate of occupancy, moved in, completed the final details, and refi'd at the best rate through Bancorp South. The 1k in stock purchase was taken off the top of the payoff.

ETA went through Alabama Ag Credit in Demopolis. Got some good info from a guy at Planters Bank in Indianola, and had we still lived in MS we would have used them.

 

[39762]

How much do you estimate being done in repairs?

 

[Nugdawg]

You’re gonna have a hard time getting a mortgage on the house until required repairs are made not just to satisfy Fannie but also the investor (bank). The escrow loan mentioned is called a 203k fha repair escrow loan and money is held in escrow and disbursed as work is completed.

I don’t know all of your specifics and missing some details but one option may be to buy the house in a construction loan and then refi it into a permanent mortgage once work is completed.

 

[Maroonbulldog]

Repairs- here is an option

“Subject to”
Yes- this requires repairs to be done prior to closing on most loans. This means after repairs are done- the appraiser comes back out for a final inspection before you can close.
The FHA repair loan mentioned earlier was a big PITA so most banks and lenders stopped doing it.

I work as a Sr Mortgage Lender at a bank in Columbus and we actually offer a conventional renovation loan that allows you to close without the repairs being done- called HomeStyle. It’s a 15 or 30 yr fixed rate, 95% financing of both purchase price and repairs, but work has to be done by a licensed, approved contractor- you can’t do it yourself. However- if you have other things you are gonna do- go ahead and get it financed into your loan now bf rates most likely jump again.

If your seller will not do the repairs- let me know- I can possibly help.

Has anyone ever dealt with banks and appraisals that come back "subject to repairs" in order to classify a house as C4 and successfully got a standard mortgage loan? I'm told Fannie/Freddie requires C4 (scale is from C1 to C6 I believe, C6 being uninhabitable).

I'd prefer to get a standard mortgage and self finance renovations on the house I'm trying to buy. I've heard banks in some circumstances keep an amount required for the "subject to" repairs in an escrow to be paid to the contractor later and issue the standard loan. House is in Jackson area. Some questions for the pack:

Has anyone had any experience with this path towards a loan?

Will most banks/underwriters finance a standard loan with a "subject-to" appraisal and the contingent escrow?

What banks/underwriters are best to deal with and the most flexible to work with in the Jackson area?


Thanks in advance for any guidance and info.

 

[ezsoil]

“Subject to”
Yes- this requires repairs to be done prior to closing on most loans. This means after repairs are done- the appraiser comes back out for a final inspection before you can close.
The FHA repair loan mentioned earlier was a big PITA so most banks and lenders stopped doing it.

I work as a Sr Mortgage Lender at a bank in Columbus and we actually offer a conventional renovation loan that allows you to close without the repairs being done- called HomeStyle. It’s a 15 or 30 yr fixed rate, 95% financing of both purchase price and repairs, but work has to be done by a licensed, approved contractor- you can’t do it yourself. However- if you have other things you are gonna do- go ahead and get it financed into your loan now bf rates most likely jump again.

If your seller will not do the repairs- let me know- I can possibly help.

this is your best option.,.

 

[Lachien]

How much work is involved

“Subject to”
Yes- this requires repairs to be done prior to closing on most loans. This means after repairs are done- the appraiser comes back out for a final inspection before you can close.
The FHA repair loan mentioned earlier was a big PITA so most banks and lenders stopped doing it.

I work as a Sr Mortgage Lender at a bank in Columbus and we actually offer a conventional renovation loan that allows you to close without the repairs being done- called HomeStyle. It’s a 15 or 30 yr fixed rate, 95% financing of both purchase price and repairs, but work has to be done by a licensed, approved contractor- you can’t do it yourself. However- if you have other things you are gonna do- go ahead and get it financed into your loan now bf rates most likely jump again.

If your seller will not do the repairs- let me know- I can possibly help.

With the homestyle loan as opposed to the FHA 203(b?). Also, assuming my credit is >740 do you have an idea what interest rates I could suspect compared to a standard conforming 30 yr fixed? Appreciate your help

 

[Maroonbulldog]

Rates are only about 0.125 to 0.25% above a regular conventional rate due to risk associated with the renovation piece. I can’t quote a specific rate but I can this week the conventional 30 yr dipped back below the 5% range.

As far as extra work- The contractor is the decider here- They have to provide a list of improvements, breakdown of cost of improvements, and if not on an approved contractor list- have to provide personal info to the bank to get approved. If it’s a relatively low $$ amount. Say $5k- very little is needed to approve but if it’s substantial renovations- say $90k- $100k worth of renovations on top of your purchase- they will ask for more such as financials, references, etc to make sure they are capable of doing a job that big. ( protects you and us).

When contractors get us what we need quick- these can close around 30 days, but typically around 45 because they grumble and drag feet getting paperwork back in

Does that answer your question?

With the homestyle loan as opposed to the FHA 203(b?). Also, assuming my credit is >740 do you have an idea what interest rates I could suspect compared to a standard conforming 30 yr fixed? Appreciate your help

 

[Lachien]

Yes that's exactly what I was curious about. Thanks

If the appraisal came back and it said it needed let's say $5k-$10k worth of work, what timeframe would the bank want that work completed in for the homestyle loan? Trying to get a feel for what timelines we would be required to meet.

 

[Maroonbulldog]

You are looking around 30-45 days- depending on how quickly everyone gets everything needed turned in on approval


I’m sorry. I misunderstood the question- usually a few months depending on what the scope of work is.

 

[Sienfield]

I sold a house this summer to a couple who used a construction loan to do renovations. We closed on the sale and they began the renovations. The house was in really good shape but was dated and they wanted it updated. The house was about 2,000 sf on two acres of land and sold to them for $100,000. They borrowed $180,000 on a construction loan and used the extra $80,000 for updates, They completed the updates and refinanced with a regular loan. My understanding is the construction loan will only pay up to 80% of appraised value (including the updates).

 

[Maroonbulldog]

This has been a good option ( construction type loans) however- The problem you face with construction loans right now is that we are in a period of rising interest rates- After the temporary construction period- you have to get your permanent financing -and the anticipation is that rates are expected to continue to rise. You are gambling on where rates go while you are building.