Thursday, January 15, 2009

As Is Doesn't Always Mean As Is

One of the pitfalls of buying a foreclosure (a.k.a. bank-owned) home is that it's "as is". The selling bank won't make any disclosures about the home's condition, and they won't make any repairs. Or will they? The fact is, in metro Phoenix, banks are quietly beginning to complete repairs on homes they're trying to sell.  Some homes, anyway.

The key isn't a certain type of home, it's a certain type of buyer. Buyers using an FHA mortgage loan are getting repairs made to REO homes, if they know how to ask.

This involves using a provision in the Arizona purchase contract called a "loan contingency."   For any buyer obtaining a mortgage, the purchase is contingent on financing, i.e. on getting a loan approval. The loan approval is based on the buyer's credit rating, job history, income, etc. But it's also based on an appraiser approving the purchase price of the home.

To get an FHA loan approval, the home has to pass muster under a stricter appraisal process than that required for homes being purchase with a conventional loan (one in which the buyer makes a 10% to 20% cash down payment).

An FHA appraisal pays extra attention to  so-called "health and safety" items. Exposed electrical wiring is a no-no. Roof tile cracks that would allow water to penetrate into the home's structure is another no-no.  A home must have a dishwasher, and/or a stove, or both, depending on which investor is financing the FHA loan. In Arizona, a working air conditioning unit is required in order to get an FHA loan. There are lots of other conditions like these, but you get the idea.

If the house doesn't meet the FHA appraiser's guidelines for... lendability, for lack of a better term... the buyer's loan won't be approved. A savvy team of Realtor, lender and buyer can use this situation to request - and very often get - home repairs made before the deal closes instead of letting the deal die and beginning to search for another home to purchase.

More on this tomorrow, with pictures. Of the house. Not of me or my buyer.