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I put a full price offer in with no contingencies aside from an inspection on a recently foreclosed home for $134k in Michigan. The selling bank came back with accepting my offer, pending I switch my mortgage financing from a USDA Rural Development loan (the property qualifies for this) to a 203(k) mortgage. This is because the two toilets upstairs froze, and they are under the impression the pipes must have burst because the tanks in the toilets froze. I saw no evidence of water damage when walking through the house, but there is potentially some damage to the pipes.

I really would like to avoid a 203(k) if at all possible. I've heard horror stories about it, plus my lender who I've been working with for the duration of my home search does not do 203(k)'s (the same can be said for most of the banks in my area). I have asked the selling bank if I get a plumber in to assess the damage and pay for any repairs out of pocket will they move forward with my original offer, but they just come back like a broken record saying "203(k) only!" Do I have any other alternatives? Any thoughts or suggestions? Thanks!

jenkin7 · Posted: Mon Mar 15, 2010 10:06 pm Post subject:

Hi kdbolt,

If you are ready to repair the damage by paying out-of-pocket the lender should not have any problem with that. I'm not sure why they are harping on 203K only. If the damage is not something major, I believe you can get a plumber to repair it and then move forward with the original offer. Talk to the bank and try and convince them to allow you to have it repaired. I don't think the bank would want to lose a potential buyer just for the sake of a 203K loan.

jveenstra · Posted: Tue Mar 16, 2010 9:12 am Post subject: Repairs

I would think between an appraisal and a home inspection you or any bank can determine what repairs need to be done to a house.
It is beyond my comprehension why a selling bank or any seller cares what mortgage you get. If the house will need repairs and USDA will not give you the loan because of the repairs needed, then you have no choice except to try for an FHA 203(k) loan or buy another property.
Even the FHA 203(k) loan will be subject to what repairs need to be done and whether after that the house is appraised high enough to cover the repairs. And, you need to qualify for the higher loan also.
Sounds like everything is riding on the inspection which was not done yet.
If the selling bank does FHA 203(k) loans, they have a vested interest if you do the loan with them. They then have a property on the books that is above water instead of the existing loan under water.

gmakerley · Posted: Tue Mar 16, 2010 2:19 pm Post subject:

but john, the appraised value the 203k lender will go with is the after-value, so repair costs ought to be covered with relative ease.

perhaps the selling institution is simply fearful that a usda loan won't be approved once the property is inspected and appraised, while a 203k loan will work with relative ease.

jveenstra · Posted: Tue Mar 16, 2010 2:28 pm Post subject: FHA 203(K)

George, I'm thinking a house gets most if its value from the style of house, square footage, etc. I'm thinking if it costs $40,000 to repair just plumbing, that adds little or no value to the house and the final appraised value may not cover the costs.
One has a better chance of increasing value if they are adding a room, additional square footage etc..

gmakerley · Posted: Wed Mar 17, 2010 9:18 am Post subject:

i feel you john, but that's a ton of plumbing problems if it's gonna cost $40K! i have to agree, though, that the extent of the damage and the cost effectiveness of the work relative to overall value will certainly play a large role.

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Selling bank is requiring 203(k) financing for sale.