Do properties need to be in "good" condition in order to be financed?

Question

I'm a Miami realtor looking to purchase out of state. First time home buyer wanting to use FHA 3.5% or conventional 3%. I'm finding a lot of properties in Ohio & Illinois for less than 100K. They need a lot of work which I don't mind... but don't banks require the home be in good shape in order to finance? Here in Miami, banks won't finance a house if it has a crack on roof tile. I need to know where the "line" is as I would really like to find a 75K house and finance it with as little money down as possible so that I can use most of my funds to fix it up and rent out. Thanks for your help.

Konstantin Ginzburg · Answer

It depends on the underwriter. Their expectations on a property condition is not standardized so the requirements of one lender may be different from others and may require you to do additional repairs prior to them financing the property. In general, they want to the house to be in good standing and habitable since the property will be what is protecting their investment. The house doesn't generally need to be pristine but it does have to be comfortably habitable. Lenders may turn down financing if certain things are found during the inspection though such as knotted tube wiring or other things that have historically caused severe property distress in the past. Since you are using an FHA loan though, they will have separate requirements of their own that are outlined in the FHA guidelines. For example, one property I purchased would not allow for an FHA financing option because the property had window units while FHA require central AC so factors like that may effect you if you are using an FHA loan, especially if you are purchasing older buildings that have not had frequent updates and renovations. The insurance providers may also have their own separate standards that they will require the property to maintain in order for them to provide insurance on the property which you need to factor in. If no insurer will provide hazard insurance, no lender will be willing to loan to a property that isn't insured.

Kristen L Garner · Answer

Hi! FHA appraisals and guidelines will be more strict than conventional in regards to condition of the property. The FHA down payment requirement is 3.5% for 1-4 units and conventional is 5% for single family primary, 15% for 2 unit primary residence, 20% for 3-4 unit primary, 15% for single family investment, and 25% for 2-4 unit investment. There are also FHA products that include rehab funds!

Giganni Lopez · Answer

Right. I've worked with his loan before with my buyers. To find contractors that work with it is a nuisance. They don't like to because it has to go through several parties for approval and they are delayed in getting paid. Perhaps my experience would be different in another state...

Lydia S. · Answer

@Giganni Lopez

Remember that FHA is for owner-occupied properties. Were you planning to move there or invest?

Carlos Ptriawan · Answer

yes, the underwriter would take a look at property inspection and may ask for additional repair prior to any funding commitment. so make sure property inspection is clean.

Eliott Elias · Answer

Lenders have classifications of condition based off what the appraiser gives the property. You can get a rehab loan built in to a FHA 203(k) loan.

Remington Lyman · Answer

most of the time it just needs to be habitable

Do properties need to be in "good" condition in order to be financed?

Do properties need to be in "good" condition in order to be financed?

Most Popular Reply

7 Replies