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Process of FHA rehab loan & appraisal

Hi. I was recently pre-approved for an FHA loan. I would like to make an offer on a house, but my realtor tells me that the peeling paint on the basement walls may be flagged during an FHA inspection/appraisal. It would have to be fixed, she said, for an FHA loan to go through. She said something about possibly repairing the walls with the seller's permission before closing, either getting the seller to do it or I would have it done. It's also possible that the loan could be an FHA rehab, and I'd have a contractor come in and repair the walls and floor. Assuming the seller accepts my offer. My realtor wants me to get an estimate from a contractor now.

My question is: I would like to make an offer on this house. At what point do I have an appraiser or inspector come in to determine what FHA would find objectionable and what needs to be fixed? Would the written offer include a contingency clause that addresses that? It seems like I should find out what FHA would flag now, rather than down the road. The cost of the repairs would factor into my offer amount...

My realtor and the FHA-familiar loan officers I've met with haven't told me anything helpful regarding this, and I'm getting frustrated.

Thanks very much,

Grace

  • September 01 2010 - US
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Answers (3)

Your realtor does not know reality. Peeling paint is not allowed under guidelines for conventional mortgages not just FHA. When the realtor takes a listing they should tell the seller that they MUST repair all peeling paint inside and outside.
A neigbor of mine refused to believe the realtor. Closing was delayed until the appraiser came back to inspect the house (to see if it was painted). The appraiser is obligated to tell in their report about the peeling paint. They also takes pictures of the outside and inside. The underwriter can see peeling paint on photos.
The home inspection (by a licensed inspector) will tell you what needs to be fixed and what is out of compliance with your local building code. If the inspection shows repairs are needed then you negotiate the costs. In NY peeling paint is against building codes.
  • September 02 2010
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A caveat to what Joe said (and good advice BTW) is that if the property you are looking at is a foreclosure, the chances of the bank doing any work, or even allowing you to do any work before closing is nil to none.  'As-is' means 'as-is'.  Yes, banks have been known to bite off their nose to spite their face insomuch that they won't do anything to the home, knowing that FHA will not allow the sale in the current condition.
  • September 01 2010
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Depending on the cost to repair the walls the rehab  loan may not make that much sense unless there is other work that you could incorporate into the "rehab".  If it is jsut peeling paint you are probably be better off jus getting it fixed between the appraisal and when you close on the home.  The appraisal will be contingent on the repair being completed if you are going with a basic FHA loan and any standard sales contract will give you the protection in case the seller is not willing to accomodate the repairs.  If you do go down the Rehab route, be sure you use someone who is familiar and currently does them.  They can be really simple or a complete pain in the rear end if you use someone unfamiliar.

  • September 01 2010
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