Funding a deal that doesn’t qualify for Fannie Mae, FHA, or VA

18 Replies

I found a 5 acre property with a 4bd 2b modular home and was able to talk the seller down to what she owes on it, $187,000. It's actual value is around $275,000. I am attempting to use a VA loan to take advantage of its 100% financing. Everything was going fine until the VA appraiser found that the house is still on its steel frame. He stated that unless the frame is removed and the home is put on a permanent foundation it does not qualify for Fannie Mae, FHA, or VA. The engineering inspector agrees with him. Now my options are 1) try and get the seller to put it on a foundation (she is a little old lady who doesn't have any extra cash lying around), 2) find a creative financing solution, 3) or let it go. I'm looking for advice on the second option but I am prepared to walk away if need be. Thanks

Hey @Bob Okenwa, thanks for the quick response. So here is the plan for that property. I want to get into real estate investing but I need to get my wife and 4 kids into a house first. With this property I could kill 2 birds with 1 stone by getting my family a nice home and land with built in equity that I could take out to begin investing in real estate. Because I want to keep the property I want to avoid expensive loan options.

@Evan Goff Are you saying you want to buy this property as your personal residence and then build a rental property on the land?

I'm new to this, and interested in this. Please post updates! I'm following this thread. Best of luck, and sorry that I don't have any advice.

Why not negotiate a long enough escrow to get the permanent foundation built and pay for it yourself? Sounds like the cushion is worth it.

I'm curious about this frame though. Does the frame have axles? If so it's a mobile home, different from Modular.

@Pedro Tavares

So when modular homes are delivered to a property generally they are removed from the frame and put onto a foundation. In this case for whatever reason the kept it on the frame. The axels and all have been removed and everything is disabled and the foundation is built onto the frame that should have been removed. It has to be removed before I can get any kind of typical loan for it.

I'm familiar with Modular construction, I'm just trying to make sure you're not actually negotiating on a mobile or manufactured home.

My suggestion probably stands in either case. Extend escrow and pay out of pocket to get this foundation built so it can appraise.

@Scott Anderle

No I want to buy this property because it is almost $100k below it's actual value. This means that after I buy it I can move my family into it, make minimal improvements, and then refinance to pullout money to buy some rental properties that I can use the Brrrr strategy on to pay my mortgage and give me a little cash flow. Kind of a half brrrr and half house hack type situation.

@Pedro Tavares That is good advice. This morning I offered the seller the following deal: 1 year owner financing while I fix the issue then refi to pay her off, recover cost of repair, and pull out some equity. What do you think?

Sounds like it will get you what you need. A longer escrow where you're not making payments to get the property to a place it can be financed sounds better.

Originally posted by @Evan Goff :

I found a 5 acre property with a 4bd 2b modular home and was able to talk the seller down to what she owes on it, $187,000. It's actual value is around $275,000. I am attempting to use a VA loan to take advantage of its 100% financing. Everything was going fine until the VA appraiser found that the house is still on its steel frame. He stated that unless the frame is removed and the home is put on a permanent foundation it does not qualify for Fannie Mae, FHA, or VA. The engineering inspector agrees with him. Now my options are 1) try and get the seller to put it on a foundation (she is a little old lady who doesn't have any extra cash lying around), 2) find a creative financing solution, 3) or let it go. I'm looking for advice on the second option but I am prepared to walk away if need be. Thanks

Evan,

You can buy it "subject to" the existing mortgage or you can buy it on owner financing.

The reason why I suggested the 2 creative acquisition strategies above is that the seller just wants out of the deal. She does not care making money on it.

With subject to, you buy it for $187,000 but the term is you get the deed and you make the mortgage payments from now on direct to her lender.

Owner financing is similar but the deed is in escrow and you make payments to her (as the lender) that wraps her old loan. 

I know these sound complicated but you ask for a creative solution so I gave you 2.

@Evan Goff

Ask your lender about the VAs Loans for Alteration and Repair

PURPOSE: This circular replaces Chapter 7, Topic 4, Loans for Alteration and Repair, in the Department of Veterans Affairs (VA) Lender's Handbook, 26-7. Info on VAs website.