Under Contract!

[Joteism]

My offer was accepted on Friday! Now starts the mayhem... And the many questions... 

I have a financing and full inspection contingencies in place. The house was under contract just a week ago by another prospective buyer, but according to the seller's agent, the deal fell through, when the inspection came back with somewhat severe termite damage and consequent issues with floor joists. My contract has an AS-IS clause, so the seller will not make any repairs, but is willing to negotiate the final sales price based on inspection estimates. I really like the house, so I'm definitely willing to pay for inspection fees to see how bad the situation is. 

I have already been pre-approved for 5% Conventional, but after hearing about the structural issues, I'm worried that the repair costs could be huge. Therefore, I've decided to wait until the inspection results to see if I need to switch to a Fannie Mae Homestyle Renovation loan. My biggest worry is time. I was only given 10 days to complete the inspection, and if I need to go with Homestyle, then I'd also need to get a HUD consultant to come inspect the place too. 

Is it normal to wait until after inspection to choose your loan type? I've been getting the vibe that I'm doing something not exactly standard when talking with my realtor and lender. I'm also being asked to rush through everything, but I'm very worried about committing to anything before I really know what condition the house is in.

Another question (possibly a stupid one)... In case of a renovation loan; does the Seller not get their money until all of the proposed work has been completed on the property? Are they basically stuck with me until the closing date? My realtor is not familiar with the Homestyle program, so he's been unable to answer any of my questions.

Pardon the rant! I'm just way more nervous than I expected to be.

[StartingOver10]

For the Homestyle loan (or FHA 203k type loan)  it is a regular end loan with a repair budget included on top of the purchase amount.

For example, lets say you have a $200k purchase price and a repair budget of $65k then when you close - the seller gets all of their funds (the purchase price less the costs to close and any lien payoff they may have on the property including their mortgage). The rest of the funds are not issued at the time of closing. They are issued per the repair agreement. From what I have seen it is 50% down and the balance when completed. Your LO will have more detail on the disbursment aspect of the repair portion of the new loan.

To recap:  the seller get their proceeds at closing so a Homestyle Renovation type loan doesn't affect the seller at all. 

The repairs are done after closing but you have to provide all of the contracts for repair work to get the approval. The house has to appraise for the value including the repair. 

You do want to do the inspection immediately to see how bad the structural problem is - you may need to renegotiate your contract with the seller if you didn't take into account the cost to repair.  It is best to get the proper licensed contractor out to the property ASAP so you can get an estimate of the damages within the ten day period. You will need that estimate to reassess where you are with your price and the needed repair.  

[Anonymous]

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@Joteism wrote:

My offer was accepted on Friday! Now starts the mayhem... And the many questions... 

I have a financing and full inspection contingencies in place. The house was under contract just a week ago by another prospective buyer, but according to the seller's agent, the deal fell through, when the inspection came back with somewhat severe termite damage and consequent issues with floor joists. My contract has an AS-IS clause, so the seller will not make any repairs, but is willing to negotiate the final sales price based on inspection estimates. I really like the house, so I'm definitely willing to pay for inspection fees to see how bad the situation is. 

I have already been pre-approved for 5% Conventional, but after hearing about the structural issues, I'm worried that the repair costs could be huge. Therefore, I've decided to wait until the inspection results to see if I need to switch to a Fannie Mae Homestyle Renovation loan. My biggest worry is time. I was only given 10 days to complete the inspection, and if I need to go with Homestyle, then I'd also need to get a HUD consultant to come inspect the place too. 

Is it normal to wait until after inspection to choose your loan type? I've been getting the vibe that I'm doing something not exactly standard when talking with my realtor and lender. I'm also being asked to rush through everything, but I'm very worried about committing to anything before I really know what condition the house is in.

Another question (possibly a stupid one)... In case of a renovation loan; does the Seller not get their money until all of the proposed work has been completed on the property? Are they basically stuck with me until the closing date? My realtor is not familiar with the Homestyle program, so he's been unable to answer any of my questions.

Pardon the rant! I'm just way more nervous than I expected to be.

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The loan type should be listed on the contract agreement between you and the seller. For example mine says that I have 30 days to obtain loan commitment for a conventional loan.  Because all loans are different. For example from your post it would never qualify for a VA loan if that was something you say wanted to have the option for(not saying you do).  But termites is a HUGE HUGE issue and some lenders require a termite inspection. I am just guessing but some lenders may not be willing to risk lending money to a property that may fall  apart literally. But I am just going off of a non renovation loan and to possibly answer your question about picking loan types. Because I think when the seller considers his offer options they look at the loan types if theres no cash. I got outbid once on a home that had a higher money offer but because I wanted VA they said they didn't want to make the home VA eligible. 

Sorry if this isn't the answer you were looking for. I guess i was just trying to explain loan types for a contract

[StartingOver10]

Yes, there is a spot in the contract for loan type (in the financing section).  However, it is not prohibited to change loan types during the approval process. 

As to having termites- this is an issue for negotiations with the seller and can be handled in the renvoation type loan. 

[Joteism]

Thank you for taking the time to answer.

Yes. The loan type listed on the contract is the 30yr Conventional. Since it is conventional, the lender will most likely not request a termite inspection, and I suppose I'm not obligated to report that info, unless I end up going with the renovation loan.

Depending on the severity of the issue, I may still go with the conventional financing, as long as the seller drops the price by a reasonable amount. I would then address the issue outside of the loan process after closing. But if the damage is really bad and I get an estimate for $15k+, then I'd really like to have an option of going with Reno loan instead.

I just got off the phone with my realtor who said to stop freaking out and assess the situation after the inspection tomorrow.

According to the lender, the renovation loan option would probably push my closing by at least three weeks, so I'm just hoping that this isn't a huge deterrent to the seller. I'm thinking of offering to pay a portion of their mortgage for the extra month, if it comes to that.

[StartingOver10]

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@Joteism wrote:
Thank you for taking the time to answer.

Yes. The loan type listed on the contract is the 30yr Conventional. Since it is conventional, the lender will most likely not request a termite inspection, and I suppose I'm not obligated to report that info, unless I end up going with the renovation loan.

Depending on the severity of the issue, I may still go with the conventional financing, as long as the seller drops the price by a reasonable amount. I would then address the issue outside of the loan process after closing. But if the damage is really bad and I get an estimate for $15k+, then I'd really like to have an option of going with Reno loan instead.

I just got off the phone with my realtor who said to stop freaking out and assess the situation after the inspection tomorrow.

According to the lender, the renovation loan option would probably push my closing by at least three weeks, so I'm just hoping that this isn't a huge deterrent to the seller. I'm thinking of offering to pay a portion of their mortgage for the extra month, if it comes to that.

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You want to address the issue before closing as far as ree-neogtiating a price if the damage warrants it from the inspection.

If there is termite damage as extensive as it sounds from your post, then it is possible that the appraiser will catch it and the u/w may require those repairs prior to closing. Yes, even appraisers for conventional loans have to mention damage to the property, not just FHA or VA or USDA type appraisers. The appraiser is the 'eyes' of the lender for the condition of the collateral.  The appraisal inspection for conventional loans is not as detailed as FHA but something that affects the collateral will most likely end up on the appraisal report.

Yes, renovation loans take longer to close.

[Anonymous]

Just my 2 cents.....but termites are nothing to mess around with. You really need to be prepared to walk away from this one if your inspection turns up the issue as well! They are nothing to mess around with!

You seem to want this house badly based on a couple of your comments - this is NOT something that I would let the seller off the hook with. They already know about the problem and it sounds like they aren't fixing it, even though they know about it, what else haven't they fixed that they know or don't know about?!? Sorry but I'd be running from this one.

[Joteism]

Not going to lie, I do really like the home. However, one of the things the sellers agent also disclosed was that the previous inspector had found prior termite treatment and found no termites on premise. So essentially what's left is the damage, that I'm now trying to assess with my own inspection. I'm also doing another termite inspection. I like the house enough to pay the $500 for the inspection.

The seller has never lived in the house. I did some snooping around once I found out his name and he appears to be outside of the country. Hence why he doesn't want to fix anything on the house.

I occasionally find myself blinded by how much I want this house, but I quickly come back to reality when I see my bank account and the savings I could potentially lose.

[Anonymous]

I was under contract on a HUD foreclosure waterfront property. Then, the inspection & flood insurance cropped up. Full risk rate for flood came in at $4k/year. We could use some grandfathered maps, but they're on a phase out schedule. The rate would slowly rise each year until it reached the full risk price. The inspection was done a day after it rained. Significant water intrusion after an ordinary rainy day plus evidence of settlement/shifting over the years. I had to back out even though I really liked the property & it's location.

I found another property Thursday, made an offer Friday, got a counter Saturday. I accepted the counter & we're under contract. Happy Easter! My sister & Realtor both recommended this property. I wasn't even going to look at it. I'm glad I did.