Lender won't approve loan for house with foundation issues?

Question

I'm looking at buying my first buy and hold investment property listed for $130,000 with an ARV of about $150,000. The house needs some foundation (pier and beam) work, among other things, which I am willing to repair after purchasing.

My lender explained they won't fund loans on houses that need foundation repair, but it's possible their appraiser wouldn't mention it since most of the homes in the area are older, pier and beam, with a tendency to shift around.

Is this common for loans to be turned down because of this? Has anyone run into a scenario like this where foundation issues prevented funding?

I'd hate to drop $300 inspection and $400 appraisal fee just to have the lender turn down the loan after the appraisal.

Kevin C. · Answer

Thanks everyone! I checked with a hard money lender (LendingOne) and they said the same thing. They won't do rental loans with foundation issues. They would, however, do a short term flip loan which could then be refinanced after 6 months to a 30 year.

We mentioned to the seller that the foundation issues were going to cause financing issues and they agreed to fix the foundation before the lender orders the appraisal.

Laura Williams · Answer

@Kevin Colwick I'm wondering if it would make a difference to your lender if the foundation repairs were done with a lifetime transferable guarantee as some foundation repair places offer & that you could get a free estimate on?? Either agree to do it after you buy or work out a deal with the seller to fix it before you close?? Just a thought.

Mike Hanneman · Answer

It will vary on the hard money lender.

You need to go talk to them, don't just hope that the issue won't get noticed.

Kevin C. · Answer

Do you think I would have better luck with a hard money lender for a deal like this? Or would they have similar requirements in regards to the foundation?

Pretty much every old house that would make for a profitable deal in the area has foundation issues because of the soil here. I need to be able to submit offers knowing appraisers/foundation won't stop the deal every time.

Chris Mason · Answer

If the appraiser calls it out, assume a qualified licensed inspector of the thing will be required to inspect and comment on remaining economic life of the thing, and if he says it's no good, dead deal. If the inspector says it's fine, the appraiser was just being conservative and prudent, then the transaction may proceed.

Gotta be ready to risk an appraisal fee if you want to play ball. That's for vanilla owner occupant white picket fence husbands and wives too, not just REI.

Kevin C. · Answer

The home is definitely livable, just a little uneven in some places. Is there a rule of thumb on generally acceptable foundation shifting? Or does any evidence of shifting at all usually disqualify?

Harjeet Bhatti · Answer

The Lender can't fund the loan with foundation issue. Its common in mortgage industry. The home should be in livable condition.

Lender won't approve loan for house with foundation issues?

Most Popular Reply