what are appraisal requirements to satisfy lender

Question

Hi all,

I understand every lender is different however I'm looking for general advice.

My situation: I am under contract for a single family 3/1 @100k  and am working with a credit union to get a 20 year mortgage with 5% down. House is in an up and coming neighborhood and some sales in the area for around 300-400k (fully renovated).  Condition is fair to poor and I know for lender it needs to meet "livable standards". I do not want to do 203k loan.

I am working closely with seller, and he is willing to make improvements to the property within reason. He has offered owner financing (we never discussed exact terms) but I thought I would prefer a bank for lower payments.

My main concern is the heat requirement - there's one gas heater in the house, but there are 3 bedrooms, a bathroom, and a living area without a specified heating element.

Pros: water, power, gas is on. bathroom functions as well as kitchen. older roof but no leaks.

Cons: floors are un-even throughout house in some areas, no HVAC only 1 small gas heater connected in a hallway

Will electric heaters pass appraisal if I bought them? Short of renovating the place what can I do to get my loan to closing?

Where can I find good comps? - I'm not working with a realtor and zillow and the tax records seem out of date. I do have access to the MLS.

Thanks!

Chris Mason · Answer

If you're unsure what to do, wait for the appraisal to come back. You want want to spend a bunch of money fixing the HVAC, and then oh whoops it turns out this appraiser is actually more of a stickler for paint.

Account Closed · Answer

@Chris Mason - thanks for the help. I have already paid for the appraisal so you are correct - it's a wait and see.

The thing I feel like I'm still in control over is if I wanted to make improvements to the house - the seller would let me, and then if even that didn't pass appraisal/meet lender requirements we could do owner financing so it would still become my property. I'm just not sure up to what improvements do I want to rush to get done in hopes of securing bank financing. HVAC? Paint job? Kitchen cabinets?

Chris Mason · Answer

Hi Karina,

In general it must be a complete and functional home that does not have any health or safety issues.

Specific to you, and this property:

It's too late to worry about it, you're under contract. Unless you hold a gun to the appraiser's head to control what she does and doesn't document, as well as what she does and doesn't take pictures of, there's nothing to do but play it by ear and see what the appraiser and underwriter calls out. Your lender may use an AMC that tends to be more or less liberal, but that's the only control you have over this. You can't really control if the underwriter looking at the appraisal is having a good or bad day, for example.

In general, the price of a definitive answer to this question when buying a fixer-upper is exactly equal to the cost of an appraisal. The reward (killer deal) is more than proportional to the risk ($400-$700 appraisal fee). All a real estate agent or lender can ever offer you is a best guess, and that requires specifically seeing that specific property in person.

A lot of real estate in Oakland is 75+ years old, so this comes up a lot for me. For my clients that can't handle that bit above about the price of an answer being an appraisal fee, I point them to turnkey full retail price recently renovated homes where you're not so much investing as you are competing with the emotions of other buyers. I like to be the guy telling you what you need to hear, not what you want to hear. :)