How would you buy a property that needs a new roof and additional work if the seller is unwilling to fix it? In this video, I’m going to share the case study of a borrower that was trying to buy a house through the FHA program—but got denied because of the property condition. I’ll explain how our innovative solution was able to get the borrowers the home they really wanted.
An Appraisal Denied
Although the borrower wanted this house, it needed some work. Anytime you’re trying to do FHA financing, they’re a little pickier on the condition of the property. In this case, we had a leaky roof and flaky paint, and it wouldn’t pass the appraisal.
The borrower had a couple of choices. Once the appraisal came back, they could walk away from the property. The seller had already said they wouldn’t do any home improvements, so we were stuck there. The only other option was to look at a renovation loan—and that’s where I came into the picture.
Taking Action
Once I saw the appraisal and understood the condition of the property, I knew exactly what we needed to do. The borrower went out and got a bid from a contractor to take care of the necessary items, and we were able to move forward. Since the borrower was already looking to do FHA financing, it made perfect sense just to switch it from a 203B to the 203K—which is the renovation program.
Once I was able to talk to Jose, he was able to find a contractor. Within a week, we had a bid. We were able to get that to the appraiser and get the appraisal updated, allowing us to move forward and complete the transaction for him. In this example, it was pretty straightforward. The total repair cost for the roof and painting was $12,000. We were able to get the bid and move forward quickly.
Getting To Closing
One of the advantages of this streamlined product is that, at closing, the contractor is going to get 50% of his money up front and the other 50% when he completes the transaction. In our example, the total transaction from the time we met Jose until we got to the closing table was about 45 days.
At closing, Jose got keys to the property and his contractor got a $6,000 check to get started on the work. When that work was complete, the contractor got the balance of his money. Once we closed the transaction, Jose’s contractor was able to get in and do the work—and was done and paid in about two weeks.
Today, Jose and his family are enjoying their new home without a leaky roof and all fresh paint. At the end of the day, everybody’s happy. The seller got the price they wanted, and the realtors both made their commission. The buyer got the property he wanted for only 3.5% down, and everybody was happy.
I’m Here To Help
The renovation loan is a great product to help save a deal if you know how to structure it. So if you’re looking to use a renovation or a construction loan on your next real estate investment—whether you’re a lender or realtor or a homeowner—I’d love to have a conversation with you. Feel free to reach out and I’ll be happy to help!
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