Financing an "As Is" Sale

11 Replies

We have looked at a pre-foreclosure SFH that is being "sold as-is, inspections for information only". It also says "broken glass in back, not suited for financing". NOTE: it is not listed as a pre-foreclosure on the real estate listing and it is not bank owned at this time.

The broken glass is only in an small porch addition that has structural issues anyway. It can be fixed or removed without compromising the house itself. There is one broken window so that's an easy fix.

I had someone in on our second visit to look at the foundation and the house is structurally sound (except the small porch).

It is currently being lived in, all systems work. It needs some electrical and minor plumbing, boiler works great but is old so it should be replaced. Roof is fairly recent, no signs of leaks anywhere, basement is dry. It will need a lot of cleaning and paint.

The seller said the bank won't take a loan to purchase because it's being sold as-is and she can't afford to fix anything, if it's a loan she will be required to fix things (like electrical). 

Is this correct? I'd have no problem buying the house as-is. I applied for an HELOC without knowing they looked at net income on my tax return and I am self employed so once they added 1% of the requested HELOC to my monthly debt, it knocked my DTI above their requirements. They suggested a traditional loan as I have excellent credit. I have some options with business lines of credit as well, but before doing this I wanted to check on why more traditional loans are being discouraged in this case (and if this is common). I believe rehab loans have more restrictions than I am interested in. We would do most of the work ourselves, and the house may also be eligible for historical tax credits (what's left of them).

Thanks in advance!

(ps I put this in the Foreclosure forum as I don't know where else it should be, and it will be a foreclosure if it doesn't sell in a few months)

Originally posted by @Tami Olsen :

We have looked at a pre-foreclosure SFH that is being "sold as-is, inspections for information only". It also says "broken glass in back, not suited for financing". NOTE: it is not listed as a pre-foreclosure on the real estate listing and it is not bank owned at this time.

The broken glass is only in an small porch addition that has structural issues anyway. It can be fixed or removed without compromising the house itself. There is one broken window so that's an easy fix.

I had someone in on our second visit to look at the foundation and the house is structurally sound (except the small porch).

It is currently being lived in, all systems work. It needs some electrical and minor plumbing, boiler works great but is old so it should be replaced. Roof is fairly recent, no signs of leaks anywhere, basement is dry. It will need a lot of cleaning and paint.

The seller said the bank won't take a loan to purchase because it's being sold as-is and she can't afford to fix anything, if it's a loan she will be required to fix things (like electrical). 

Is this correct? I'd have no problem buying the house as-is. I applied for an HELOC without knowing they looked at net income on my tax return and I am self employed so once they added 1% of the requested HELOC to my monthly debt, it knocked my DTI above their requirements. They suggested a traditional loan as I have excellent credit. I have some options with business lines of credit as well, but before doing this I wanted to check on why more traditional loans are being discouraged in this case (and if this is common). I believe rehab loans have more restrictions than I am interested in. We would do most of the work ourselves, and the house may also be eligible for historical tax credits (what's left of them).

Thanks in advance!

(ps I put this in the Foreclosure forum as I don't know where else it should be, and it will be a foreclosure if it doesn't sell in a few months)

 Use cash to bring the loan current and out of foreclosure, give the seller some moving money and take over the loan using Subject To. Fix up the house, refinance or sell or rent out or do what I do and sell to a Tenant Buyer and get a big down payment and let them do the rehab. Lots of ways to take this one.

Hi Mike - yes I know there are tons of options here but I'm trying to understand why a habitable house is supposedly not eligible for financing. Foreclosure proceedings have been started but the bank does NOT own the house. Except for the taped up window (which can barely be seen from the street), the house looks great from the outside.

I think I've read that an inspection can be waived for any purchase so it's not like someone will come in and say "I know someone was living in here but I'm going to deem it not livable". I've only bought one house in 1990 so I've forgotten a lot and I'm sure much has changed! Just trying to learn here. :)

Updated 5 months ago

I talked to a mortgage guy and they do have some options so we will see where this goes. He said most of the time it's a time issue which this one is not (as of today)

"Habitability" is in the eye of the beholder. Can you get a three year roof certification from looking at the house from the street? Are all of the mechanicals working properly? Are there smoke and carbon monoxide detectors on each floor? Is there any peeling paint on the exterior or the interior? Is there any lead based paint? Are there railings on any porches or landings and if there are, are the spaces between the balusters smaller than 6"? Is there caulking with no breaks on toilets and other wet areas? Are there air gaps in doors/windows? Does the slope of the dirt leading up to the side of the home towards or away from the home? Is there ingress and egress to all rooms from windows? If there are bars, are they capable of being opened from the interior? Any mold? Any dry rot? Any missing shingles? Any leaning eaves? Any stains on the walls, ceilings?

Any and all of those could be health and safety issues and could stop a section one clearance, rendering the home not financeable by traditional means. Rarely does an exterior street observation ever tell the whole story. 

@Tami Olsen As is condition is not a problem for purchase contract for the purpose of financing. If the property is not in livable condition regular conventional loan won't work unless you fix it. If seller allowed you can fix that during the loan process you can still get the loan. When the appriser go in the property ----make a note ---you have to repair that before lender will lend. Most of the time seller is not comfortable to repair anything unless you own that property. You can still buy this property with HELOC and after rehab you can cash out.

Originally posted by @Harjeet Bhatti :

@Tami Olsen As is condition is not a problem for purchase contract for the purpose of financing. If the property is not in livable condition regular conventional loan won't work unless you fix it. If seller allowed you can fix that during the loan process you can still get the loan. When the appriser go in the property ----make a note ---you have to repair that before lender will lend. Most of the time seller is not comfortable to repair anything unless you own that property. You can still buy this property with HELOC and after rehab you can cash out.

 "You can still buy this proper with HELOC"? Huh? I would have added a lot of caveats with that statement before hitting the send button. You MIGHT be able to purchase a property with a home equity line of credit provided, the lender that is providing that HELOC financing to you has underwriting guidelines allowing a property to be financed with deferred maintenance. SOME (not all) lenders providing HELOC's will only require a 2055 drive by appraisal, while many will require a full blown 1004 interior appraisal and if there is any deferred maintenance that impacts health and safety, will require (Should...) it to be repaired before they will lend, bringing you right back to the issues associated with conventional loans/financing. The poster already stated they did not qualify for a HELOC with their bank due to income. Also, HELOC or not, the poster also stated there are structural issues and electrical issues. I'm sure on the surface it's as simple as rewiring a light switch (It's always that simple) but I've seen it where once you open that junction box, the reality starts to set in that its more than a light switch. After all, the OP stated its a historical building. The term "knob and tube wiring" start to creep up in my mind.

That said, if the OP is trying to do a HELOC on their existing home and not this subject property, than my comments should be ignored totally, except the part about THEY ALREADY DIDN'T QUALIFY FOR THE HELOC DUE TO INCOME.

Also, "after rehab you can cash out"? Maybe your employer has that program but again, there are caveats to that statement. If it's worth $200,000 as is, and it's being sold for $200,000, and you get a HELOC for $200,000 (Ain't gonna happen at 100% LTV on a HELOC), and then "rehab" it for say $50,000, and then say it's now worth $250,000, you are going to be faced with LTV issues, seasoning issues, costs associated with reappraising and refinancing into a conventional loan, and so forth. I'm not saying your scenario doesn't work, I'm just saying there is a LOT more to it than just buying it with a HELOC, fixing it, and cashing out.

If the OP however is buying the property through other means like business lines of credit so that it is a cash purchase for all intents and purposes, yeah, buy it, fix it and then refinance it or sell it to recoup the cash invested, provided they qualify for whatever loan it is they are trying to do (Income, collateral, etc.).

@Ron S. Q was bying with HELOC and business line of credit. I am not talking about taking HELOC on new property. Purchase property with HELOC consider as cash and you can cash out under delayed financing exception after rehabbing it.

Originally posted by @Harjeet Bhatti :

@Ron S. Q was bying with HELOC and business line of credit. I am not talking about taking HELOC on new property. Purchase property with HELOC consider as cash and you can cash out under delayed financing exception after rehabbing it.

 hence my disclaimer:

"That said, if the OP is trying to do a HELOC on their existing home and not this subject property, than my comments should be ignored totally, except the part about THEY ALREADY DIDN'T QUALIFY FOR THE HELOC DUE TO INCOME".


@Ron S.

That can be challenge also if you know how to work on guidelines. Just for information purpose. Its MLO job to prepare the file before submit to U/W. Taking a file and submit to U/W is not good solution for investors file.

Wow thanks for all the replies! I am going to try and hit all of your points.

One thing I completely forgot about when I talked to the mortgage guy yesterday was the electrical. The panel has been upgraded but it doesn't look like the wiring throughout the house is. It didn't bother us as we have an electrician in the family and planned on rewiring the entire house anyway (I think current outlet codes are insane, but that said, this house is really on the low side and I've only lived in vintage houses)

@Ron S. Great questions! Three year roof - to my untrained eye based on my own roof experience, I'd say yes. But I'm not an inspector.

It's a cape and the second floor isn't heated and is used for storage. I know there are smoke and CO detectors on the main floor, I don't think there is anything upstairs. 

Exterior is vinyl sided and that's in good shape. No idea how the paint is underneath, the exposed clapboards inside the rear porch are not peeling.

There are replacement vinyl windows.

Newer back stairs to the back yard - that's all that has balusters. I assume the 6" is for a kids head? I didn't measure but by my photo probably not, but not a difficult fix.

One side of the house needs minor grading, the rest is fine. No water in the basement in that area, just something we noted as a future issue if not fixed.

No mold, rot, window bars, all rooms have windows, no stains, nothing leaning (surprising for the age to be honest).

The entire living area is wallpapered. There is peeling paint on the second floor (noted above as storage). We'd planned on insulating and finishing the ceiling on that. And now that I think of it, half of it has been finished and is not peeling, but someone painted the sheathing on the unfinished half, and that's what's peeling.

All mechanicals work except kitchen sink leaks. (probably 1940s vintage) We saw that and it's noted in the disclosure. 

@Harjeet Bhatti Even if the seller doesn't mind, there is probably no way we'd be able to get in there to re-wire completely while she is living there, in a reasonable amount of time. Nevermind we'd be redoing the kitchen and bathroom completely anyway... so do you do a "patch" to make the sale then go back and do it again? I had talked to the mortgage guy about the rear porch but completely forgot about the electrical - since it wasn't staring me in the face. It kind of went along with "of course we're removing wallpaper and repainting".

To clarify, I was not using THIS property for the HELOC, it was my current house and yes, Ron is right that I was denied due to DTI. I do have a business line of credit as an option. And will (hanging head in shame) tell the mortgage guy about the electrical issue. I did tell him about the kitchen sink.

Thank you again for the replies, this is a great learning experience for me!

Sounds like you have a home with good bones and good potential. If the numbers crunch in your favor and you have the means to execute on the sale, you know the saying, "No risk, no reward".

Thanks @Ron S. - it's our first so pretty scary being in uncharted territory. The bones are great, kitchen and bath are big issues, electrical of course, everything else is cosmetic. And time. 


I forgot to ask - would a rehab loan eliminate some of these issues? I realize they come with their own set of restrictions. The mortgage guy said we could close before the bank takes possession but I don't know if rehab loans take longer to approve.

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