Investor · Skagit County, WA · Member since 2016 · 1k+ posts · 807 votes
What level of finish does a home need to be to qualify for conventional financing?
I'm looking at a home north of Seattle that is a two story home that is gutted on the first floor, and completely remodeled and finished on the second floor. This would be a live in flip property.
All the systems are updated, but no drywall hung on the first floor. I assume that I need the walls covered, but how much finish and paint does it need?
What's the definition of a kitchen? I lived in plenty of studio "micro kitchens" and survived, so what do I need? Just plumbing to a sink and some counters?
Are subgrade floors enough? Right now it has some hardwood floors, some plywood subfloor.
Basically, I would like to get conventional financing and get away with as little complete before closing so that I can do the regular rehab work myself. Yes, I thought of a 203k loan, but would rather not. Yes, I could do hard money and then refinance when it is all complete too. Does this vary by bank? Basically, what's the lowest level of finish allowable for conventional bank financing?
Tacoma, WA · Member since 2010 · 203 posts · 93 votes
10y
It is going to vary somewhat between lenders and appraisers. Some adhere more closely to FHA guidelines than others. And the lower the appraisal rating the smaller the lender pool. I would shop lenders to find one that will work with you.
203b is another option. I'm doing one right now with plumbing issues (among others) where 203b was the easiest option. And even then the first appraiser wouldn't play ball without the water being turned on, but lender was able to use another one that was fine with that.
Standard things most lenders seem to want: Most health and safety items. All systems intact and operational. Plumbing, electrical, mechanical. Roof in decent shape. No holes in floors. Very few holes in walls. Operational bathroom and kitchen. Kitchen needs hot food prep (generally a range), a sink, and some cabinet and countertop space. You can probably get away without a lot of floor cover and millwork.
I think from that picture it is going to be hard to go conventional. Looks like it at leasts needs some electrical/plumbing/mechanical, insulation, drywall...
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
10y
@Julie Marquez I don't think conventional has specific rules versus FHA which has many standards. I believe it is the individual banks that could have rules and the appraisal must support your price. Unfinished rooms could be an issue because they will not count towards finished square feet, so would affect value. I would talk to local lenders or local real estate agents.
Investor · PA · Member since 2013 · 1k+ posts · 602 votes
10y
You could put blinds in the windows downstairs and the lender might be happy with a good drive by appraisal. Maybe don't mention the condition of the downstairs and see what happens.
Investor · Skagit County, WA · Member since 2016 · 1k+ posts · 807 votes
10y
This is a picture from the MLS listing. Bedrooms and bathrooms upstairs are finished, and this looks livable enough for me, for now. @Jassem A., great idea as long as they don't see the listing pictures, right?
Rental Property Investor · Milltown, NJ · Member since 2014 · 131 posts · 130 votes
10y
Hey Julie,
Are there any reports that are with the listing. For instance inspection reports, or if it is a foreclosure any info from the bank. I had a bank stop me cause a box was checked that the heat didn't work. I also had a bank stop me cause there was no kitchen during an inspection.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
10y
@Jassem A. and @Julie Marquez they are going to go inside. Drive by inspections are what insurance agents do, not lenders. I like the creativity in the idea. By the way, that is one of the nicest looking unfinished rooms I have ever seen.
Investor · Skagit County, WA · Member since 2016 · 1k+ posts · 807 votes
10y
@Rich Vogel This is a just a personal home that the guy inherited and needs to get out of, I'm assuming he's out of money. No kitchen would be a problem here. What's the definition of a kitchen? I know what a standard one is, but I'm wondering what the least allowable kitchen contains.
Permit issues were discussed with the city today, I should follow up on that.
FNMA also has a great renovation program and it looks like this home would be perfect for this. You can live in during construction and all aspects of the construction would be taken care of for you like FHA's 203K. No MI if you put down more than 20% as well.
PM me or post on the thread if you have any more questions Julie.
Tacoma, WA · Member since 2010 · 203 posts · 93 votes
10y
It is going to vary somewhat between lenders and appraisers. Some adhere more closely to FHA guidelines than others. And the lower the appraisal rating the smaller the lender pool. I would shop lenders to find one that will work with you.
203b is another option. I'm doing one right now with plumbing issues (among others) where 203b was the easiest option. And even then the first appraiser wouldn't play ball without the water being turned on, but lender was able to use another one that was fine with that.
Standard things most lenders seem to want: Most health and safety items. All systems intact and operational. Plumbing, electrical, mechanical. Roof in decent shape. No holes in floors. Very few holes in walls. Operational bathroom and kitchen. Kitchen needs hot food prep (generally a range), a sink, and some cabinet and countertop space. You can probably get away without a lot of floor cover and millwork.
I think from that picture it is going to be hard to go conventional. Looks like it at leasts needs some electrical/plumbing/mechanical, insulation, drywall...
Rental Property Investor · Cedar City, UT · Member since 2016 · 209 posts · 45 votes
10y
@Julie Marquez I will have to agree with @Bryan R. that it will be hard to get a loan on this house. I think that they have seen too many owners buy a place with an intention of fixing it up.....
I believe you will need to do quite a bit of work before you can refinance.
NYC, NY · Member since 2016 · 617 posts · 456 votes
10y
I purchased a home that had no kitchen. There was also no batk6h. Thus no COO. No one would give me a loan. They all said I needed a kitchen and working bathroom. Unless things have changed, you may have difficulty getting financing.
Rental Property Investor · Milltown, NJ · Member since 2014 · 131 posts · 130 votes
10y
Hey julie, you can look at it as all major parts of the house need to functional for the most part. So cabinets would need to be in. By the picture it doent look like it would qualify for a conventiona. You could pm better pictures and i could give you a better guess i would look into hard money or private money.
Investor · Bowie, MD · Member since 2015 · 53 posts · 16 votes
10y
Yes banks definitely have stringent rules regarding financing homes that are unfinished. The home must be "livable", electricity, heat, running water ect. You may can find a bank to finance the property, however you will just have to shop the property around.
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
10y
What about locking it up with a purchase option, finish it enough to qualify, then exercise the option and purchase with conventional financing? The seller may not be willing to entertain this, but then again they might if you ask.
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
10y
If you do the above, spend some money on a lawyer to make sure the contract is air-tight and consider setting up an escrow account to impound house expenses like property taxes, mortgage, insurance, etc. to ensure that they get paid during the option period so the owner doesn't just pocket the money and leave you with the liens after purchase. So, there are some things to be aware of, but it can be done if structured properly. I admit that I am no expert in these types of "creative finance" options, but there are some on BP that are and may be better to advise on the details.
Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
10y
Insurance could also be an issue with the home in its current state of completion. You could possibly get a course of construction policy. Check with your agent?
Investor · Skagit County, WA · Member since 2016 · 1k+ posts · 807 votes
9y
@Dave W.@Brian Holland I didn't buy this house, but some lucky cash buyer got it for $330 and turned around to sell it at $570.
We did by a different unfinished house and we are fixing it up now. We had to use a construction loan and it worked out great. It was 3.75% for 30 years, with the first year being interest only. It is owner occupied loan. You can read about the deal in my journal.