Hello All You Short Sale Superstars
I am attempting to purchase a short sale home and have finally received approval from all parties ( after several "surprises already) and was ready to move on inspections and loan applications using FHA Loan AND MHDC Down Payment Assistance forgivable loan program.
It suddenly came to a screeching halt yesterday when we were told just before the septic inspection by the inspector that he could tell me up front from just taking a look that the septic won't pass inspection (probable repairs needed ranging $600-10K) and would either require extensive repair or alternatively having the home put on public sewage ($5k+) and to my knowledge becuase I am using FHA this would have to be payed for by the bank (sellers lender) prior to my being able to obtain a FHA loan.. We postponed the official septic and building inspection to research our options ...
This property is being sold 'as is', although the seller, his realtor, and the bank all express no previous knowledge of the septic issues. In fact tried to reassure me that the visual inspection was wrong and to go ahead with the actual septic inspection... Would have been a dumb move on their part since MO requires all failed septics to be reported and disclosed to any potential buyer.
We had enough trouble getting all the approvals in the first place, and had to come up 7k for them to accept...SO, I dont think there is any way that the sellers lender will take a 5k cut at all, much less up front... I have been researching my options and here are my thoughts and questions
1. Does FHA require a septic Inspection? I was looking at the FHA Inspection form and there are only a few lines referencing the septic and its all visual and maybe could pass a visual inspection and we could Switch to Public Sewer after the sale.
2. Doesnt FHA require all its homes to be on public sewer if it is available?
3, The sellers lender on this " as is " short sale had an appraisal done (that expires July 1) this appraisal was based on the assumption the septic was not in need of repair . If this streatched out long enough wouldnt they have to get another Appraisal in July with the knowldge of the Septic issues (if we go through with this)?
3. Would it be a good/viable option to make a new offer that includes the repairs based on this new information Or wait until the (sellers) lenders appraisal expires and a lower appraisal is made to do this...would we be just waiting to start she whole process over only to be dissapointed again?!
4. I was considering writing a letter to my agent CCing the seller/sellers agent/ sellers lender (possibly sent alone but Maybe to send along with a new counter that requires that the repairs be made 15 prior to closing) in this letter I would remind them of the risks they would be taking if they turn down our offer
- once I have had the official inspection and it fails... The failure will then be reported to the county AND any potential buyers
- most buyers would not be able to get a loan on a home that won't pass septic inspection and also the fact that it has this label (litterally an orange septic failure sticker on the door) may scare away any potential buyers who don't want to deal with that kind of head ache. Etc....
- this house has been on the market for over 4 months and if they lost us we would be the second accepted buyer to walk away and the longer its on the market the more they risk foreclosure which I assume would be more costly and more lost the the possible 5k in repairs we would be asking for..
Question 5 is more need of knowledge about available programs .. We have been pre-approved for both a FHA first time home buyers loan and the mhdc down payment assistance forgivable loan. I came across a possibility of another loan that may help solve this repair issue and allow us to move forward. The FHA 203k Streamline loan... My question is, . If I use this FHA 203k streamline loan will I still be able to utilize the MHDC forgivable down payment assistance loan? And if I take this route shoud I just wrap the 5K for repairs into it OR should I make a lower offer to cover part or all of the repairs and wrap it into my loan. I really have already gone 7K above what I initailly decided I wanted to pay, could afford. How much really would another 5K+ affect my monthly payment.
6. Do I have any right to know what they appraised the house for (even though it incorrectly reflects a passable Septic System)
7. Currently I have been working with Wells Fargo but since we havent applied for the loan yet would it be Good or Bad idea to consider using the sellers lender for my loan...maybe that would give them motivation to be more amicable?
Thanks for reading... Any suggestions, observations, feedback etc... are wecome and feel free to ask Questions for clarification....
Thanks for any knowledge, resources and/or help you can provide. We would really love to call this place home and I would hate to have this one thing prevent that.
Warmly, Jackie
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Replies
1. I sell in the Kansas city area and the only area that requires a septic inspection is Johnson County, KS. If your inspector was able to determine by visual only that it will possibly fail a septic inspection then I am almost sure FHA will require one be done and if needed, have the repairs done prior to the loan being given.
2. FHA loans on homes that have septic systems.
3. I would get a septic inspection done and then get a couple of bids for the repair work to be done and then go back to the seller with a counter of what you are willing to pay based on these figures.
4. You are absolutely right. The house does become less marketable with septic issues and the buyer's available to purchase decreases substantially due to the limited financing and purchase options available. You do need to have the agent representing you looking into as much as they can too. Your agent needs to be the one to negotiate with the seller so try to leave that to them.
5. I would talk to your lender regarding the FHA 203K loan and MHDC down payment. I just had a client buy a home last month with a MHDC loan and wanted to do a 203K loan but was denied for qualifying reasons so I do think the two can be worked together.
6. If the sellers loan is FHA then yes the appraisal of the home can be given to you. FHA defaults also take scheduled price reductions when the house is on the market. With that saidI would not wait for the bank to drop the price. If the value was done as a BPO or Broker Price Opinion, then its a market value estimate done by another agent in the market and this figure is never given out.
7. Doing a loan with Wells Fargo because they are the current noteholder will not increase your odds of getting the home.
I hope this information helped. Many blessings to you. :)
1. not sure, I would check with your lender on that one.
2. I'm almost sure it doesn't, septic would be fine if that's what the property has
3, This question is really dependent on the type of loan(fha, conventional, VA), servicer, and investor on the seller's loan - see if you can find out any of that and let us know.
3. I would ask for a price reduction based on the price of the repair
4. I would communicate though your agent, unless you don't think they are really representing you well. If the later is the case you have bigger issues than that.
5. I asked the exact same question about 203k's and our down payment assistance programs here, and the answer was "no". I doubt this will be different in your area, but it should be a question your mortgage broker or loan officer could answer for you.
6. In almost every case the buyer doesn't have the "right" to this info. Often the seller can't get this info, just what the bank's counter offer is. .If the selller's loan was an FHA loan, the seller's lender has to send the appraiser if the seller or seller's agent request it. Your leverage here is that they need you to accept the condition, so getting a copy of this if the seller can get it shouldn't be too hard.
7. I've never seen anything to suggest the shorted lender cares who the buyer's lender is. It is worth noting that if the seller has an fha loan, you get slightly better terms, 1% cash back if requested.
I actually read on the MHDC flyer the FHA 203K STREAMLINE was one of the qualifying loans. Doesnt seem like many people know about the second option for the 203K program. I am just trying to get some verification. I guess Ill call MHDC on Tues.
Copied Directly from the:
Missouri Housing Development Commission
First Place Loan Program
Operations Manual
http://www.mhdc.com/homes/documents/operations_manual/FPLP_06022011...
FHA 203(ks) Loans {Notice The Difference 203(ks) vs 203(k)}
It is acceptable for FHA 203(ks) loans to be included in this program. All regulations in
accordance with HUD Handbook 4240.4 Rev-2, and any subsequent changes or mortgagee
letters will be followed, with the exception of the following:
1. Borrowers must occupy the property within 60 days of loan closing if the rehab
will not prevent occupancy; otherwise, within 30 days of completion.
2. Rehab must be completed within 180 days and final disbursement and all
inspections completed prior to final closing date of the bond issue.
3. Discount fees approved by MHDC may not be included in the loan amount.
4. Additional discount fees may not be included in the loan amount.
5. Lenders will be required to forward all 203(ks) processing documents to the
master servicer.
6. Lenders may charge a supplemental origination fee of $250.
Ah, streamline! The one we were looking at was definitely not a streamline, more like $50k in repairs. Goodluck.