How to get FHA backed loan work with REO?

[Mike Berlay]

Hello,
We are planning to make an offer on REO. Property don't have major problems, but I think there will be issues passing FHA inspection. (garage converted to room, illegal)
I really want that property and the only options for me to go with FHA. I will live in house.
I know banks don't like FHA, because of inspection.
I'm planning to get certified FHA inspection. And submit offer with inspection.
The question is: what I have to put in contract to make repairs done before closing. I will pay for repairs.
Any other ideas?
Thanks to everyone.

[J Scott]

Mike -

Unfortunately, this is going to be a very difficult situation for you. It's very unlikely that the bank will agree to do any repairs prior to close (especially big stuff like a room conversion or anything that requires inspections), and it's safe to say that you won't be able to get a typical FHA loan if the property doesn't pass inspection prior to close.

That said, have you talked to your mortgage broker about FHA 203(k) loans? These FHA loans are made with the intent to provide rehab funds along with the purchase loan, so that you can make repairs after close. For obvious reasons, the property won't need to "pass" a full FHA inspection prior to close.

Talk to a broker/lender about what you need to qualify (and in what condition the property must be in to qualify)...it may be your best bet...