FHA - Purchase of a partially completed home

[KatieKatie]

Hi, I'm hoping someone can help me with some options to purchase a home we love.  I've been pre-approved for a purchase price of $402,000 on a FHA loan of up to $387,500.  This is the amount we're eligible for because this is the maximum FHA loan amount in my area.  My challenge is that the house I'd like to submit an offer for is a foreclosure and only 95% complete.  I've heard a number of times that FHA can not be used for a construction-perm loan, which would be the ideal solution.  To further complicate things, I don't think a 203k would work either because based on what I've read the home would have to have been completed for at least 1 year for this option, and that's not the case.  I have to go with FHA because I can only manage a downpayment of $20,000 and my scores are 630 EQ  657 TU and 625 EXP although the FICO simulator says my EQ score will be in the 660-690 range in 1 month and 670-710 range in 3 months (is that thing accurate???).  I thought that maybe I could offer full price of $400,000 and include a decorator/flooring allowance in my offer of $15,000 which would take care of the major items that need to be finalized but that still won't resolve the issue of the home not being completed at the time of the FHA inspection/appraisal.  Are there any obvious solutions to this dilemma that I've missed?  Thanks in advance for all of your wisdom and insight!

[p-]

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@KatieKatie wrote:

Hi, I'm hoping someone can help me with some options to purchase a home we love.  I've been pre-approved for a purchase price of $402,000 on a FHA loan of up to $387,500.  This is the amount we're eligible for because this is the maximum FHA loan amount in my area.  My challenge is that the house I'd like to submit an offer for is a foreclosure and only 95% complete.  I've heard a number of times that FHA can not be used for a construction-perm loan, which would be the ideal solution.  To further complicate things, I don't think a 203k would work either because based on what I've read the home would have to have been completed for at least 1 year for this option, and that's not the case.  I have to go with FHA because I can only manage a downpayment of $20,000 and my scores are 630 EQ  657 TU and 625 EXP although the FICO simulator says my EQ score will be in the 660-690 range in 1 month and 670-710 range in 3 months (is that thing accurate???).  I thought that maybe I could offer full price of $400,000 and include a decorator/flooring allowance in my offer of $15,000 which would take care of the major items that need to be finalized but that still won't resolve the issue of the home not being completed at the time of the FHA inspection/appraisal.  Are there any obvious solutions to this dilemma that I've missed?  Thanks in advance for all of your wisdom and insight!

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If it's just flooring, roll the dice and pay for wall to wall install of the cheapest carpet you can find, or see if the owner will do it.  If it's missing porches, do them out of cinderblock just in front of the door.  What else is missing?

[StartingOver10]

Do you know what items are missing that would prevent the Certificate of Occupancy? It might be called a different thing in your area, but a Certificate of Occupancy is the document issued after all the finals have been signed off by the building department.

If you do some due diligence you may find that there is more to the completion process than just the cosmetics like flooring. If it is just the cosmetics, then see if the 203k will work.  Generally, in circumstances like this, your due diligence with the building department is done before you make an offer. Sometimes just an hour or two will tell you if its worth pursuing or not. 

[KatieKatie]

Thanks for the advice, I will see what I can find about the CO.  There are quite a few things that are not complete, but I can't decide which are major or required before closing because I've never had a FHA inspection.  The largest items are that there is no front door, the  fireplace is not complete, some of the rooms do not have interior doors, a few windows are boarded up, oddly enough there is flooring but it appears to have been intentionally damaged and there are a few large holes in the walls (I'm assuming by the former owner because the house is not vandalized in general), and a couple of the bathrooms need countertops.  I can't really say what issues might exist with plumbing/electrical because it's currently not on and I haven't had an inspection since we haven't made an offer yet.  I agree that there are likely other issues but I guess what I'm looking to understand is what the financing options might be (if any) in our current situation to accommodate this.  Unless someone knows something different, I don't think a 203k loan would work because from what I've read the house would have to have been completed for at least 1 year before you can use that option, and unfortunately this house has never been completed.

[Anonymous]

There is no CO because the house was never lived in.I am going through the same thing.A lot of LO don't know that this can't work.The only loan that you can get for this house is a construction loan.That I did was fine a builder to buy the house cash and complete it and them I buy it from him.That is what I am doing.The builder got the house and if its God's well my loan with go fine and I will close next month.That is the ONLY WAY NO OTHER WAS.I KNOW 100%

[p-]

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@KatieKatie wrote:

Thanks for the advice, I will see what I can find about the CO.  There are quite a few things that are not complete, but I can't decide which are major or required before closing because I've never had a FHA inspection.  The largest items are that there is no front door, the  fireplace is not complete, some of the rooms do not have interior doors, a few windows are boarded up, oddly enough there is flooring but it appears to have been intentionally damaged and there are a few large holes in the walls (I'm assuming by the former owner because the house is not vandalized in general), and a couple of the bathrooms need countertops.  I can't really say what issues might exist with plumbing/electrical because it's currently not on and I haven't had an inspection since we haven't made an offer yet.  I agree that there are likely other issues but I guess what I'm looking to understand is what the financing options might be (if any) in our current situation to accommodate this.  Unless someone knows something different, I don't think a 203k loan would work because from what I've read the house would have to have been completed for at least 1 year before you can use that option, and unfortunately this house has never been completed.

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That's a lot - Your mortgage broker and/or real estate agent can probably tell you how much has to get done before it can qualify for an FHA, but I'm guessing it will be a lot.  If you have any sources for temporary private money, like a bridge loan, you might have a better shot.  Then you can refi once work is complete.

[StartingOver10]

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@Anonymous wrote:

There is no CO because the house was never lived in.I am going through the same thing.A lot of LO don't know that this can't work.The only loan that you can get for this house is a construction loan.That I did was fine a builder to buy the house cash and complete it and them I buy it from him.That is what I am doing.The builder got the house and if its God's well my loan with go fine and I will close next month.That is the ONLY WAY NO OTHER WAS.I KNOW 100%

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That is an excellent idea! Good luck, I hope it is a smooth purchase for you.