Lender helps couple buy foreclosure in need of repairs

Mortgage lender: Chris Bartlett Purchase process: $ 360,000 Loan amount: $ 347,400

Loan terms: 30- year fixed FHA mortgage

Backstory: Bartlett was recently contacted by a couple in the process of purchasing their first home. They had been pre- approved by another mortgage lender but were having a difficult time being approved for the mortgage because of the condition of the property.

The only mortgage they could be approved for because of the qualifying ration’s and current credit score was a Federal Housing Administration mortgage.

The house they were purchasing was a foreclosure and was badly in need of an exterior paint job. The paint in many areas was peeling off and some of the wood had rotted as a result.

Because FHA requires any home being purchased to meet specific conditions requirements, the house was failing the appraisal.

Bartlett’s first thought was to switch the file to an FHA 203K stream- line mortgage but when it was suggested, the listing agent advised that the asset manager handling this sale was unwilling to consider any offer with a 203K mortgage. Making the request could potentially provide cause for the transaction to be terminated.

At this point, Bartlett suggested contacting a contractor to see how much and how quickly the work could be performed. The appraisal and mortgage are subject to the repairs being made — it is normally required that repairs be made prior to the mortgage closing, especially a repair as costly as this one.

Because the property was a foreclosure with an asset man- ager unwilling to allow the borrower to apply for 203K financing, Bartlett needed to try to structure the mortgage with an escrow holdback. The couple was able to secure a well- qualified contractor to provide an estimate for the repairs as well as a guarantee completion time for repairs to be made within two weeks.

When the couple’s application was submitted for approval, it required senior management to review to approve the escrow hold back. By presenting all of the information upfront, including the reason the repair could not be made prior to closing, the solution for approving the mortgage and time frame it would take for the property to be repaired to meet required appraisal guidelines, the escrow hold back was approved.

The couple would have to deposit into escrow one and one half the amount of the repair at the time of closing, to be released back to them when the repair has been completed.

In exchange for doing this, they would be allowed to close on the house without the repairs being made prior to closing.

Having a repair escrow hold back approved is not something any lender or bank wants to do. But if the need can be demonstrated and a solution is present that includes the true costs and reasonable time frame for the repairs to be competed, the lender can provide this option.