Closing Thursday, underwriter denying loan

8 Replies

Hi Bigger Pockets,

I ran into a problem yesterday with my first investment property that I am trying to purchase and I need some advice.

Situation:

The underwriter for my conventional loan is denying the loan based on the property being listed in "fair" condition by the appraiser.

Appraisal:

In its current condition, the appraiser is saying the property is worth $160,000.  Items listed in fair condition include: the 15 year old carpet, new appliances, counter tops, sinks, bathroom cosmetics, minor wood rot, new windows, and loose stairs on one of the patios and new air conditioners.  These are things that I would have done anyways. The underwriter is requiring all items on the appraisal marked as fair be repaired to average condition.

Buyer (me):

I am able to put 20% down and I have excellent credit. Additionally I will be owner occupying this property.

Seller:

The seller is very unlikely to provide more than 1 extra day to close.

Property:

The property is located in Richland Hills, Texas and it is a duplex.  The purchase price is $170K and it is a FNMA Homepath property.  I have the cash  to cover the difference in appraisal and sales price and enough for 20% down.  

Financial Performance:

Total repairs are estimated at $40,000, closing costs at $10,000, and purchase price at $170,000 for a total cost of $220,000. Using $1,100 per month rents each ($2,200 total), I think my NOI will be $14,573 in the first year and my BTCF at $4,900. Using a 7% cap rate, I think the property value is $206,000 and the return on equity (cash on cash) at 20% is 13% annually.

Do I have any options to make it to close on Thursday for this property?  My lender is a local bank and will provide a renovation loan to me, but it will take 2+ weeks to make it happen.  

Thanks in advance for any advice or options.

@Richard Duane McClellan Step 1 is to get an extension signed, and you had better move quickly!  Depending on how your contract is written, if you fail to close on time, you may lose your deposit.

You might consider a hard money loan to carry you through a short term while you complete the repairs needed to get the conventional loan.

@Richard Duane McClellan

The appraisal should have come back a while ago and these issues brought up and explained repairs would need to be made. As for those issues, I have never seen a conventional loan declined for those reasons (and trust me, we've closed on much worse!) 

Also, I've never seen a Fannie Mae that's not willing to extend for those reasons. 

Personally, I would try to switch lenders because wtf? But if you can't (and if what you say is true about not extending), and you have cash to make up the difference, then what's the problem??

Thanks Melissa,

I have enough cash for 20% down + the additional 10K for the purchase price that exceeds the sales price.  I do not have enough cash to buy the entire property without financing.

I am being told the asset manager for Fannie Mae is not willing to extend the contract.  Additionally, I put an offer on this house 2 months ago and lost the bid.  The buyer at that time failed to close on time as well because they were attempting a renovations loan and failed to get their contractor bids together by the close date.  The asset manager at Fannie Mae had the property back on the market in 48 hours and this second time I was able to win the contract.

We are going to ask for an extension, but I am trying to find some solutions first.

Thanks

@Richard Duane McClellan - Dang, that's cold blooded! I'm guessing your market is super intense then, we've never seen anything like that here!

First, I would ask the lender to ask the underwriter why the repairs for conventional? And let them know you were doing that once you move in. Again, I've never seen that for conventional and would want an explanation (and I mean, at least it helps us maybe solve a problem and possibly maybe they thought you were government loan?!) 

Ask (nicely) for an extension and let them know the circumstance. Yes, they may not give a ****. But they just might. I don't know if telling them you're going with the 203k would benefit you though in that circumstance, I would just honestly go with a different lender but that's starting from square one. 

Yikes, crazy stuff. Can get have someone else underwrite it (if it's a bigger lender?) This seems super outside the norm...

Originally posted by @Richard Duane McClellan :

Hi Bigger Pockets,

I ran into a problem yesterday with my first investment property that I am trying to purchase and I need some advice.

Situation:

The underwriter for my conventional loan is denying the loan based on the property being listed in "fair" condition by the appraiser.

Appraisal:

In its current condition, the appraiser is saying the property is worth $160,000.  Items listed in fair condition include: the 15 year old carpet, new appliances, counter tops, sinks, bathroom cosmetics, minor wood rot, new windows, and loose stairs on one of the patios and new air conditioners.  These are things that I would have done anyways. The underwriter is requiring all items on the appraisal marked as fair be repaired to average condition.

Buyer (me):

I am able to put 20% down and I have excellent credit. Additionally I will be owner occupying this property.

Seller:

The seller is very unlikely to provide more than 1 extra day to close.

Property:

The property is located in Richland Hills, Texas and it is a duplex.  The purchase price is $170K and it is a FNMA Homepath property.  I have the cash  to cover the difference in appraisal and sales price and enough for 20% down.  

Financial Performance:

Total repairs are estimated at $40,000, closing costs at $10,000, and purchase price at $170,000 for a total cost of $220,000. Using $1,100 per month rents each ($2,200 total), I think my NOI will be $14,573 in the first year and my BTCF at $4,900. Using a 7% cap rate, I think the property value is $206,000 and the return on equity (cash on cash) at 20% is 13% annually.

Do I have any options to make it to close on Thursday for this property?  My lender is a local bank and will provide a renovation loan to me, but it will take 2+ weeks to make it happen.  

Thanks in advance for any advice or options.

You told homepath you are going to live there and you are telling the lender you plan to rent it out?