Conventional loan with repairs questions for a Rental

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Conventional loan with repairs questions for a Rental

Courtney Olson
Member since 2023 · 9 posts · 3 votes

Good morning,

I’m looking at a 4/2 brick home on an acre Lot in AL and I live in FL. I like the location and it’s currently rented. The structure and roof is good with some issues I want fixed:

-covert fuse box to 200amp cb panel

-storage shed/garage water damage

I’m seeking advice on how to make an offer with either the seller repairing these items (another investor I’m not sure I trust to do it properly) or asking for funds at closing (escrow). 
I believe the most I can ask is 2% for concessions but I’m wondering how the process would work for holding funds in escrow for repairs and satisfying the lender. 

Thank you,

Courtney

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Benjamin AakerPro Member
Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
2y

Are you trying to purchase without using an agent? I'd recommend asking this question to an attorney or a RE agent.

If you insist on doing it yourself: If you don't trust them to do the repair properly, you should ask to have your contractors come in to bid during the diligence period. Then you can negotiate a credit for these amounts at sale.

It is possible that your lender will not offer you a loan with an older fuse box. In that case you'll need to ask the seller to replace at his cost followed by an inspection that you will pay for. You'll need to make sure that the sale is contingent on your satisfaction with the repair. Again, not legal advice here, but general recommendations - get an attorney to write it up. 

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  • Dan Thomas
    Rental Property Investor · Bow, NH · Member since 2016 · 216 posts · 185 votes
    2y

    Is the 2% for concessions an AL thing?  Are you under contract?  You can make an offer for anything you want.  An option could be doing some research to ball park what these estimates would come in at and remove that amount from your offer.  You could, or the agent could explain how you arrived at the offer.  Another option could be to submit a conditional offer that each of those items are fixed before closing by a licensed and insured professional (if that is important to you).

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  • Doug Smith
    Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
    2y

    I'm not licensed in AL (but I am in FL). Since the property is there, I can only do investor loans in AL, but from a consumer standpoint you can do Conventional, FHA, VA, and USDA as a renovation loan where you take the cost of the property plus the cost of the renovations as your purchase price up to the value of an "As-Repaired" appraisal. As for an offer, start with your ARV and subtract out your renovation costs, financing costs, a reserve amount for contingencies, any profit margin if you plan on flipping it, closing costs for both the buy and sell sides, and soft costs for the permitting, etc. Back into your maximum buy number that way. Just don't pull it out of the air. It can be done.

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  • Benjamin AakerPro Member
    Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
    2y

    Are you trying to purchase without using an agent? I'd recommend asking this question to an attorney or a RE agent.

    If you insist on doing it yourself: If you don't trust them to do the repair properly, you should ask to have your contractors come in to bid during the diligence period. Then you can negotiate a credit for these amounts at sale.

    It is possible that your lender will not offer you a loan with an older fuse box. In that case you'll need to ask the seller to replace at his cost followed by an inspection that you will pay for. You'll need to make sure that the sale is contingent on your satisfaction with the repair. Again, not legal advice here, but general recommendations - get an attorney to write it up. 

    1Reply
  • Mike GrudzienPro Member
    Lender · Eugene, OR · Member since 2019 · 2k+ posts · 1k+ votes
    2y

    Courtney,
    --use a seasoned real estate agent
    --might even add in an attorney

    My 2 cents,
    Mike

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  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    2y
    Quote from @Courtney Olson:

    Good morning,

    I’m looking at a 4/2 brick home on an acre Lot in AL and I live in FL. I like the location and it’s currently rented. The structure and roof is good with some issues I want fixed:

    -covert fuse box to 200amp cb panel

    -storage shed/garage water damage

    I’m seeking advice on how to make an offer with either the seller repairing these items (another investor I’m not sure I trust to do it properly) or asking for funds at closing (escrow). 
    I believe the most I can ask is 2% for concessions but I’m wondering how the process would work for holding funds in escrow for repairs and satisfying the lender. 

    Thank you,

    Courtney

    The direct interested party contributions can only be 2% for a conventional loan. But, that is just the funds paid by the seller on the closing disclosure. You can  however ask the seller to fix before closing (as you mentioned there are downsides here) or reduce the purchase price. It is not common for conventional lenders to allow for escrow holdbacks.
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  • Jacob Sherman
    12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
    2y

    concessions can't be for repairs on a permanent loan . Can only be for closing costs 

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