Monday, August 25, 2008

Bank doesn’t want to sell – or Lend!

True story.

I have a client who wants to buy a home at the lowest possible price. They (Mr. and Mrs. Client) know how to do quite a bit of handyman-type stuff, and they have friends & family members who are professional contractors. Their goal is to find a bank-owned home which isn't in very good shape; they can buy the home at a low price and then fix it up without having to pay labor charges. Sounds like a decent enough plan – there are plenty of lender-owned homes currently for sale.

We make a phone call to a lender to make sure they'll be able to qualify for a mortgage, and learn that we shouldn't have any trouble at all considering the price range we're looking at.

This weekend we found a great property – they like the neighborhood, floorplan, and structure of the home, but it needs A LOT of work. The A/C Unit has been removed, along with the ducts. Most of the rooms are showing concrete floors. Door-frames are missing, there are holes in the drywall, the kitchen is in disarray – you get the idea.

We call the lender one more time to dot our I's and cross our T's before submitting an offer. That's when we learn about our next hurdle...

Most banks won't want to make a loan on this home as they'll consider it uninhabitable. The banks which will make a loan will require a large down payment and a higher interest rate.

The buyers are hoping to use a small down payment in an attempt to conserve the money they've saved for fixing the home.

It seems like a perfect scenario: The bank can sell the home. The buyers can buy the home. The bank can make a loan to a borrower with perfect credit AND money in the bank. The buyer can fix the home up and increase their equity. The bank would have a loan against a property with plenty of equity. The neighborhood would have a home in top condition.

Instead, the bank SAYS they want to sell, but what they really mean is they want to sell to somebody who can pay cash AND pay to repair the home. In essence, they're shrinking their pool of buyers down to investors only. My guess is the bank is not going to get a "win" out of this transaction if they're only catering to investors.

On top of that, the bank doesn't want to make a loan to a borrower with perfect credit, money in the bank, and buying a home which is well within their debt-to-income ratios.

How far will this go?

Your still doesn't think the banks know what they're doing Realtor,

Chris Butterworth


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