Hello Real Estate Savvy friends!! Hoping I can get some advice on our situation ...
We've been under contract with a home since Jan 1 with a USDA Rehab loan. The house isn't in terrible shape, just needs a bunch of "stuff" done before being approved for a loan. Upon our lender's advice, we had a contractor draw up a bid, and then the appraiser came out a couple weeks later. Well,the appraiser only appraised at $1k over selling price ... And our rehab portion of the loan is beyond that, which means they can't lend us what was needed. We've been through 4 contractors, but no one will agree to sign off on the contract (husband is going to do all the work, but no contractor will take on the responsibility by letting us use their name for the bid).
Here is our last ditch effort to get into the home. We are going to offer the seller a lease option. We would like to move in, make the repairs while renting, and in a few months, reapply for a loan (with no rehab portion needed due to home in better shape) and finish this process we've started.
Our lender and real estate agent have been not overly helpful throughout this process, so I can't trust that they are doing everything in such a way to move this forward with no glitches. So, for you seasoned players - does this sound realistic? What do we need to watch for? How do we protect our interests? What haven't we considered?
Of note: The seller is still in the process of replacing the septic... This won't be done until the ground dries. And, we can't qualify for a conventional loan until later this summer due to our past mistakes... Which is why things are more picky with the USDA/FHA route.
This seems risky to me because the improvements you are making will raise the value of the home which gives the seller a conflict of interest. Now they could sell the place for more if they somehow manage to get out of the contract with you. If you do this definitely find out how to "cloud" the title, and get a lien so that they can't just back out on you.
If you are going to make improvements while on an option, see if you can negotiate those expenses into a reduced price for the house. After all, if the option doesn't come through, they own the improvements. This particular deal would make my stomach anxious, but maybe it will work for you.
PA is a bit difficult or has more "rules" on lease options which also might be why the agent/lender involved are not thrilled about it - what about a contract for deed or wrap mortgage on their existing mortgage for 9 months ? BUT you likely need an attorney who understands this creative stuff in PA who can help the agent understand what is going on and the seller. Does the seller need their cash out? have you talked to all parties about options (no pun intended) for the purchase? When all parties are willing there is always a solution that can be found.
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