Wednesday, February 26, 2014

Seller Won't Give Us An extension For Our FHA 203k, What Do We Do?

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Sometimes sellers can be a real pain. They say they want to sell the home, you get into contract and everyone agrees on the price... and then, and then, and then along comes John.

Just kidding. I had a consultant contact me first thing this morning with this problem. Buyer wants to add a second story to a home they are purchasing and due to the additional layer of plan review right now in this economy with everyone being understaffed it will take a little more time. The seller isn't willing to extend their ten day inspection contingency to fifteen days.

HELLO - we aren't talking about extending the close, just need a few more days to meet with the contractor and engineer to see what foundation adjustments will be needed so we can add them to the paperwork and insure we loan the borrower's enough money to get the job completed and not run out of money half way through the project. It is not unreasonable to ask for a few more days up front if you, as the buyer's agent, know there is going to be a second story addition.

The 203k consultant is an amazing part of the process in that we need to be all trades and come up with a solution, a bid that describes what we are going to do with prices or costs that reflect the work being done and we typically do it in 2-3 days and sometimes in a day, or 4-5 days on the big projects then it goes out to bid and while the loan officer is closing the loan with our numbers the contractors are bidding the project and they may take another week or two without pushing back the close date.

LITTLE KNOWN SOLUTION TO THIS ISSUE - A borrower can close the loan with the first story only being renovated, then, after it closes and the work begins they get their plans into the city or county for the addition of the second story... as long as we close the second phase of this project loan within the first six months of the original closing the money that was put down originally will be counted as money they have in the new new project loan.

You heard me correctly, they could potentially get the money for the second story addition with no more money out of their pocket (bank of course). Worst case is that they have to put up an additional 3.5% of the additional construction if they didnt' gain any equity from the first phase and inflation.

We just did one like this where we closed the first phase, now the plans were approved and after closing the first renovation, did another 203k right behind it, that construction is about to start, the loan just closed. Yes you can also add a unit and increase the loan amount dramatically if the zoning allows for the additional units.