Mold! How to finance/remediate if I can't appraise?

4 Replies

We have an offer on a duplex with some extensive mold. I've dealt with mold, and plan on gutting and renovating regardless, so it is not a big issue. However, I didn't realize our mortgage  broker can't get an appraisal approved if there is visible mold. 

We have several options: 

1. Demand the seller mediates. We won on a best&highest, multiple offer situation (our area is very hot for flippers paying cash), so they are unlikely to do this. 

2. Pay cash, re mediate, and then re-finance. 

3. Extend due diligence, ask the seller to use a remediation company that is paid at closing (apparently this exists)

4.  Other suggestions from the community? 

We are looking at the second option, however, I've not gone through this process before, and hesitant. Mold aside, it's a great investment. Any advice is welcome! 

I think #2 is your only option if you want this property, based on the situation you are in (hot area, multiple offers received) ... 

If you had a moldy house that people were throwing money at you to sell as-is, would you bother with anything more complicated than a quick cash sale?

True, but we don't know the other offers paid cash. On our last contract had mold as well. The seller refused to negotiate, and we pulled out. It's still on the market a year later. So I think #3 is not unrealistic in our market.

I should re-phrase my question: Ignore option 1, because obviously we will request this. But assuming the say no, can someone offer advice or experience on#2 or #3? 

Especially, I'd like to know what would could go wrong with re-financing. We have never done this before.

I also suggested 2 because that's my actual strategy, buying cash, rehabbing and then cash-out refinance. ("BRRRR") Honestly (KNOCK ON WOOD) I have had zero issues refinancing. However, I also have a history of a well paying steady job, assets, high credit score, etc.

The biggest thing to know is the "seasoning period" will be 6 months to a year if you want conventional (cheapest) financing, and what will home values and rates be in a year?  You have to basically sit with your money tied up for a while, hoping that rates and terms will still be what you hope them to be... and that the housing market hasn't somehow melted down.

You can also do "deferred financing" before the seasoning period, but they will not loan on the appraised value, they will only loan on the purchase price.  There is also "portfolio loans" which is where the bank holds it on its books, so they dont have the same rules as "conventional." However, I dont use those loans and I believe the rates are higher. 

Either way, its a risk because you wont be sure what sort of financing you will qualify for once you get it rehabbed, or what the market will be doing in a year...  I take little, affordable risks (relative to my income and assets) so I dont sweat much. Worst case, I can just forgo the refinance but I can't buy another investment property, it wont break me. 

Ah ok! Thanks for your insight. 

This is for a rental property, rather than flipping. So having the cash tied up (for a short period - no one wants cash sitting in a property for 10 -15 years) and credit is not an issue. But it seems that even with conventional financing, our interest rate goes up after closing. 

(In this case, we have a rate of 4.5%. The broker tells us it will go up to 5.65% if we cash out and refinance - assuming rates don't go up in the next few months. Still not clear on why it would be more expensive after closing)

So although we could hit the mold and immediately get the appraisal, I hate the higher interest rate on a long-term property. Is this just part of the deal, or any way around this? 

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