What disqualifies a house from financing?

9 Replies

I know that a house needs to be livable for most FHA financing ect....

I'm looking for my first live-in flip and I'm basically looking for the crappiest house that will qualify...

Is there a list of specific things that will disqualify it? I don't want to waste time trying to jump on a house that's a good deal because it's a fixer, but find out it's too much of one because of reason x,y,or z to qualify for financing. 

Any resources would be greatly appreciated! 

Sounds like a great plan! I recently bought a duplex as well with FHA financing. A few things that I was told by that FHA says are:

Must meet the minimum standards of safety, security, and soundness.

I found a link that goes into way more detail of what the requirements are for FHA loan:

http://www.investopedia.com/articles/mortgages-rea...


Hope this is helpful and you are able to locate a great property!

@Natalie Kolodij There are many different things that can make a house fail an inspection. I would recommend you get an inspection on a house you are looking at first. In Houston, they run about $200. It will save you a lot of time if you know if it will pass or fail before you contact a lender.

Thanks @Jeremy Pakalka I will have an inspection done on any property. 

However this is a super hot real estate market and properties sell fast, What I'm trying to avoid is even wasting my time looking at something if it visibly has something that will definitely disqualify it from financing. 

The other thing you need to consider is whether or not the house is insurable. If you get a loan on it, you need to insure it. Some places will not insure a home if,as an example, it has two layers of shingles on the roof.

I would be up front with the lender and up front with your insurance agent BEFORE you even commit to a formal credit check on a loan to get answers.

Fannie Mae also has some really strange rules you might have to abide by...talk with your lender.

@Natalie Kolodij I do believe there is a form under the Fireplace that shows what will all disqualify a property from FHA financing.

My experience is most banks will either decline to finance or require repairs as a condition of sale any property that is considered uninhabitable. That would mean no heating/cooling system, broken or dilapidated plumbing, non-watertight roof, failing foundation, etc. Usually cosmetics won't come into play unless you're talking about such severe vandalism or dilapidation that the property would be difficult/impossible to sell if the bank had to take possession. 

Here is a list of FHA's minimum property guidelines. Your agent though should be well aware of what could make a property not qualify for certain types of loans. Missing handrails and peeling paint are the two most common things I see that need to be fixed for FHA.

http://www.investopedia.com/articles/mortgages-real-estate/11/fha-minimum-property-standards.asp

I'm going to give a little editorial/rant with relation to the lists that have been posted about Fannie Mae - they aren't complete.

My personal opinion is Fannie Mae is anti-investor.  Trust me when I say you need to talk and communicate with the lender because Fannie Mae will do anything they can to screw you over (I don't think it's intentional - at least I hope not).

Two examples from personal experience...

1) No matter how much you negotiate with the seller, Fannie Mae will not allow you to accept more than 2% in concessions on the sale price.  I attempted to do a deal earlier this year and had negotiated that the seller and I split the closing costs.  Because the seller's closing costs would have been more than 2% of the LOAN AMOUNT (this is lower than the sales price), Fannie Mae would not finance the loan.  We had to re-structure the deal to get around the concession rule.

2) I closed on a 3 bedroom 2 bath foreclosure I purchased at auction for $4,000 cash (no typo) last Monday directly from Fannie Mae.  First, Fannie Mae would not allow me to get title insurance through the closing company they insisted on using with the result being my having to pay for 2015 property taxes that are due this coming November 11th.  Second, I was not told that the deed associated with the title transfer would have a stipulation that I cannot re-sell, or use the property as collateral on a loan exceeding $6,600, for the next three months.  For the price I paid, I'll put up with the nonsense...but that essentially means I can't get a loan to fix up the place (hard money or otherwise) or sell the place for more than $6,600 until February sometime (the 3 months starts the date the title transfer is filed).

Beware when dealing with Fannie Mae - read the fine print and ask questions up front.  Communication with your lender is the best defense over lists on the internet.

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