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Denied financing due to home condition

We found an older house on a huge lot that was offered at 250K. We knew there were issues (missing deck, new siding needed, etc) so we offered 220K, it was accepted. After inspection, more issues were identified so we settled on 205K with 55k down. We have excellent credit (over 800 scores) and another home with over 150K in equity as well as other liquid assets so we never thought financing was an issue. Well, they turned us down due to unacceptable appraisal. I understand it was not the appraisal amount but rather the lack of true comparables in the price range. In  any case, the lender has no interest in working with us. The realtor thinks we should try another lender but I am now worried that the house is not a good deal at 205K. Any thoughts?
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December 06 2009 - Portland
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ask your Realtor about the guidelines on the loans first (FHA loan for this case in worth it or and some others programs,) and don't get graicy looking for one and another house , pick the one satisfide your needs, and all cases are different to other ok bye bye.

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December 06 2009
Was it denied b/c of the condition or b/c of lack of comparables?

If it is the condition, there is an FHA loan that will allow you to borrow money for the repairs, so that shouldn't be an issue. A good lender who works with these types of FHA loans can explain it in detail; I know just enough to get me into trouble!

What did it appraise at?

If it is lack of comparables, talk to a different lender. Sometimes they know appraisers who can look into it before you spend money on an appraisal. I've never heard of a loan being denied for lack of comparables before but that doesn't mean it doesn't happen.

Did your agent give you comps? What did she use as comparables?
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December 06 2009
The house may not be worth what you think it is. Talk to your broker about comps also check with a lender thta offers a loan on fixer uppers. They are out there.
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December 06 2009
This is a recent problem with many rural and unique homes because not enough homes are selling in order to give the appraiser good comparables to work with.

You just need to sit down and talk with your agent about the house and what makes sense for you.  You need to understand that the appraisal process these days doesn't always have roots in reality.  Lenders are very skittish about lending on homes that don't have clear comps. 

If you trust your agent have them pull comps for you again.  If you have seen everything there is to see then you should have a gut instinct about whether or not you are getting a good deal. 

It sounds like the appraiser said it was worth what you are paying, but that he/she had to really scrounge for comparable homes.  What happens is that the appraisal management companies do internal reviews and some reviewer in some other state said the appraisal was dubious.  It doesn't necessarily reflect badly on the house itself.   Just the current lending process.
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December 06 2009
If the home was denied financing because of condition, speak with your loan officer and Real Estate Broker about FHA rehab financing. There are loans available.  If your present lender won't do it, check with others (again your Realtor should be able to help you).  If you really want the house, I would not give up. If you are now concerned about the value, then I'd again turn to your agent for comparable data.  Did the appraisal come in at value, but was denied because of condition?  Or did the condition elicit a low appraised value or complete denial?  Without knowing the particulars of the property or your situation, it's hard to "armchair quarterback".  All the best,
Janeese Jackson
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December 06 2009
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How did you do your cost estimate for the repairs?  Without that piece of the puzzle, there is no way to know how it will pencil out.  Do you have lots of construction and repair experience, or were you planning on hiring that all out?  Will you be living in it during the repairs?  Deck and siding are not critical to livability, but other things could be.


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December 06 2009

You need to work with someone who understands real estate and not just sales. If I were buying this house, here's how I'd approach it:
1. Visualize the house you want to end up with and make notes.
2. Write an offer subject to you and your builder or architect going through the house and coming up with estimates to do what you want to do, and obtaining financing to do so. You'll need at least 30 days.
3. Based on that, determine a value of the house when it's fixed up. If you just go through the normal house-buying process of the using the inspection clause and really, not doing much more than guessing, you'll just be chasing your tail and it can be very frustrating.
4. Take your package of the house as competed to an appraiser, if you want to pay the few hundred bucks, or to a real estate agent who can give you a value range on the completed product. NOTE: An appraiser's opinion will be more useful than an agent's because appraisers have metrics available for estimating future value from construction.
5. At this point, you have a meaningful package to take to a lender. You will also have the option of using a bank who does construction lending or will go with a construction-to-permanent loan package. Don't bounce frm lender to lender. A loan like this will take a company experienced with it. My first stop would be Washington Federal, and if they won't do it, they'll give you leads to lenders who can.
6. When your 30 days is up, write an offer you can live with in the usual way.

All the stuff about no available comps and all that is true, but with the above steps, you can circumvent all that--re-program the computer, if you will. And don't underestimate falling decks and issues like that that seem easily fixable. That's an instant red flag for FHA, because it's a life safety issue and they'll head the other way so fast you can play cards on their coat tails.

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December 07 2009
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If the deck is really a safety issue, the building department will not give you an occupancy permit.  So, you simply demolish the unsafe parts before moving in, put in some temporary steps, then work to rebuild it at your convenience.  It is the foundation, roof, and internal items I would be more concerned about.
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December 07 2009
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Thanks for the replies. I think I actually asked the wrong question. It was more: Is it possible that he lender denied us for the lack of appropriate comps rather than that they think it isn't worth the price it was appraised at? Melina and others seemed to confirm that it could be. I appreciate all the advice and ideas. I'm not sure what we are going to do yet but I'll post back when we get it resolved.
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December 07 2009
Have you looked at similar homes in the same price range as your final offer?
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December 08 2009
IMO, it was the second thing--they didn't think it was worth the price. When a lender looks at a property, it looks at the downside and considers its position fs it has to foreclose. My guess is that your lender made this assessment and decided to pass, based on the comps.

The quality of the comps themselves matter less, because they will be what they are even for a loan that gets approved.

That's why I suggested to offer up the home as remodeled instead of the home that presently exists as collateral.
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December 08 2009
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My opinion is the same; the lender assumes more cost to repair then you did, and is not willing to take the risk, especially if you are not experienced at the repairs and there is a likelihood that you might walk away after starting several construction projects.
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December 08 2009
As Pasadenan says, the lender clearly doesn't want to take the risk, and a loan on a house that requires siding replacement may well become a loan that the originator gets to buy back from Fannie Mae.

In a slow market, getting "true comparables" is a challenge, which doesn't mean that positive thinking and a go-get-'em attitude is enough to overcome it.

By now, I presume you looked at rehab loans?
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December 13 2009
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As long as the lender doing the loan is a reputable one (Wells, Chase, PNC, Bank of America... etc... a known name) they all use an appraisal service the reviews and certifies the appraisals and is then reviewed again by the bank.

Anytime realtors have challenged my appraisals, they can't provide me with better ones... or at least realistic ones that make sense.

Chances are the appraisal is pretty good and the seller and realtors involved are not.  Pay more attention to the appraisal and make sure to subtract the cost of home improvements from it, if not done already.

Consider a rehab loan or just pay cash for the house with your liquid assets and equity in your other home.

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December 13 2009

 Were you even able to get a response as to "why" you were denied the loan? Sometimes, from our end, we see that it is a lender requirement that can or cannot be satisfied that could have been addressed earlier in the process. Which lender are you going with? 

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December 13 2009
look into a 203k loan. its a fha product for owner occupied homes that allows you to do repairs with a certain time frame and close.

talk to your leander.
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December 15 2009
Try Julee Felsman at 503-288-9284 Equity Home Mortgage.  She is one of the best in town and will help you avoid expensive repair loans...
Also, have your Realtor work up a better CMA for you so that you do not have to wonder about value.
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December 29 2009
 
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