Loan declined due to unlivable units, options

4 Replies

Would like to start by saying how awesome biggerpockets is. I usually find answers to my questions in podcasts and blogs, however I am in need to help!! I recently went under contract on a 3-family home in Somerset County NJ. Purchase price was 300,000 and I planned to put 25% down, under a primary residence mortgage. One unit is in great shape and I planned to live there while completing repairs on second and third unit. The home is "as-is" and although mortgage is for a 3-family home, I assumed that only one unit would have to be livable (for me as owner).

Anyways lender appraised and deemed the 2nd and 3rd unit unlivable. 2nd floor needs drywall, kitchen, bathroom completion. (Maybe 25k in repairs) 3rd floor needs kitchen (maybe 7k in repairs). The news was devastating as I'm out roughly $2500 for inspection/appraisal cost. Even worse is that the house is slipping away from me!

My question is what can I do if seller will give me a second chance and extension to close. Are there any options besides fha 203k loan? Or hard money lender?

Concerns with 203k, Its my understanding that the process could take 45days.. leaving the seller likely to not accept. Also if I have the ability to put 25% is 203k really my best option? I'd prefer to not pay insurance on the loan. Also I have connections to cheap labor :) I'd really prefer to avoid paying a contractor to charge me full boat for "regulation requirements". 

Concerns with HML, the quick closing possibilty would be great however do they strictly oversee the repairs? The house's appraised value would far surpass the interest and points charged if I refi'd later. I'm not even sure they would offer a loan to me? I am employed full-time, live rent free, and have one two-unit property currently both rented.

Bottom line what are my options? The house is selling for 300k and has appraised prior to repairs for 440k. I have 75k to put down. I was planning on maxing out my homedepot and lowes cards aswell as getting small loan from parents for repairs if the orinigal mortgage went through.

Any help is greatly appreciated! I'm striving to have a new rental property every year so time is of the essence! Thank you


Fannie has a loan similar to the 203k and doesn't have phi for the life of the loan. A HML can Not lens to an owner occupant. No one will be able to get conventional financing in it's current condition so the seller needs to be convinced delaying another 30 days or so for you is likely his best option..

Thank you for the feedback! I'm going to look into the Fannie Mae Homestyle loan. Looks like they be strict about controlling the renovation process, which I understand but I would prefer to cut my own checks and use personal connections for labor.

To clarify I would have no issue purchasing as investment property instead of owner-occupied. That was just out of convenience for the original loan.

Any opinions on what someone may do if they were in my shoes? Thanks


@Jeffrey Clyne If you really don't need to live there (at least initially), find a HML or private lender that can do a quick close. Get the repairs done. Then refi. Assuming there's enough room in the deal for paying closing costs twice.

Fannie Mae Homestyle loan doesn't work for a multi-unit rental, but it does for a multi-unit primary residence, so it could be a good choice. Did it work out at the end of the day?

Another naive idea, let me know if it is stupid: if the purchase price is well below ARV, can one simply shut the unlivable units and appraise only the livable one, as if it was a SF home?