HELP - Cannot finance property because missing plumbing. Need advice.

7 Replies

Hi Everyone,

I'm looking to purchase my first property and have run into an issue with the financing.  Some of the copper plumbing for the 2nd floor bathroom was removed from the property.  Based on what the agent is telling me, the repairs should run around $2,000-2,500 which I am not too concerned about.  I have been approved for a mortgage but the issue is that the lender will not finance the property in its current condition with the missing plumbing.  The seller also does not appear ready to pay for the repairs.

Is there a creative way where I can get the property under contact so that I can make the repairs so that I can still use conventional financing?  I appreciate any feedback!

You could consider using a hard-money lender and then refinancing w/ a conventional loan after you spruce things up.

@Luke MacDougall It's been my experience that you'll need a local bank that keeps their loans on their own books (doesn't sell the mortgage) to finance properties that are difficult to do so otherwise with a more conventional lender.  The money is more expensive (e.g. 6.3% ARMs that are fixed for five years and amortized over 7 to 15 years) , but they can be infinitely flexible.  Once you get it purchased and fixed up you can then refi into something more affordable.  

In short, the issue may be that you need a different lender.  

@Luke MacDougall  

If you use hard money you'll be giving away equity.  I would try to avoid that route. 

I sold a property last year with a similar scenario. The house wouldn't pass for an FHA loan as it sat, but with 2K worth of repairs it met the lenders requirements. The buyer elected to perform the repairs at their own expense. As the seller, I had them sign a release of liability just to protect myself.

If I were you I would tell the realtor you are fine with performing the repairs yourself and get it under contract.  The lender will then perform a second inspection to verify the repairs were made.  The seller should be thrilled!!  They now have a "vested" buyer that is improving their property at no expense.    

Lock it up!!

@Chris Uhler   I like the way you think, especially if I was the seller.  I'm going to have to remember this.  

@Luke MacDougall  

If you are going to live in the property you can do:

1. FHA 203K which finances the rehab. Need to have contractor bid and do the work and get a draw.

2. Persuade the seller to allow you to do the repairs before appraisal and settlement and then finance FHA 203B. (that's the regular FHA program with 3.5% down payment.)

There are also conventional rehab products such as the Homestyle and some private lenders have them.  The hoops you have to jump through make them a challenge for repairs that small, so unless there's other work you can also roll in I would stick with the suggestion to get them repaired prior to closing.  It's always a risk to do work on a home you don't own yet but your team can help protect your interests.  Good luck and let us know how it turns out.

Agree with @David Krulac   and @Chris Uhler  

 I've done this before.  As long as you are Sure you qualify, the house will appraise and title is clear, it's the simplest, cleanest way to handle it.

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