Limit to repairs for financing?

Question

Hi everyone!
I found a duplex in a great neighborhood that needs substantial repairs. And I’m super new to investing…and totally lost. I’m wondering if anyone can tell me how many repairs are too many to qualify for financing. I think these units are close to a tear-down, but with the asking price, I will have quite a bit of cash on-hand to handle extensive repairs.

Kori Bundi · Answer

@Charlie MacPherson thank you!!! That clarifies a lot!

Charlie MacPherson · Answer

@Kori Bundi  If you are buying with FHA (not including 203K), USDA or VA lending, there are VERY strict requirements regarding condition.  Even a little peeling paint will disqualify it unless the seller makes the repairs and then you pay for a 2nd appraisal.  Other examples include a cracked window, wobbly handrail, uneven walkway, roof with < 5 years of life left, hot water vent/relief pipe not 18" from the floor - the list goes on and on.

For conventional lending, they want to be sure all major systems are functional.  Plumbing, septic/sewer, water, HVAC, etc.

If it's in really tough shape, talk to your lender about an FHA 203K loan.  That's specifically for construction / renovation / repairs.  It's more work with hoops to jump through, but it's a good loan.

Also, talk to your local credit unions and banks to see if they have construction lending available.

Be sure you get a couple of contractors in to write up a scope of work and expect them to charge you something reasonable to do so.  Add 10% - 20% (depending on your risk tolerance) to their estimate and see if the numbers work.

Good luck!