Getting conventional financing for a property in "below average condition"

Hi, I’m a real estate agent trying to help my father inlaw buy a fixer upper/foreclosure. The property will be owner occupied once is fixed. He’s got a mid fico around 740, but will probably have to go stated or no ratio because of a low income and high DTI ratio. The problem we are having is with the lenders not wanting to loan on an below average or even average condition property. We were ready to close on a prop at one point up until the appraisal came in at 40000 more than our purchase price but stating the prop is in “unlivable condition”. The lender(Suntrust) backed out. :banghead
It seems to me that it has to be a way to purchase all these foreclosures out there for the regular folk, given that most of them need work and most would not make a good deal for a “seasoned investor” with cash in place.
I know the answer might be in a small local bank, and I am currently trying to locate one down here in the Atlanta metro area. I’d gladly welcome any advice or reccomendation for a broker or lender. :beer

There are lenders for “retail” financing and lenders for nonretail/commercial financing. You have to get away from the folks doing retail financing because they want the house to be in livable condition.

You are probably going to need to get some form of rehab/construction loan that takes into account the rehab process. COncentrate on lenders who offer nonowner occupied loans - explain the situation. You may have to get a HML to get this done.

Good luck.

Small local banks are always a good option. The problem is that they are definitely going to want to get some income verification. You could always try for a rehab loan, but you will most likely have to come out of pocket for a down payment.

Although many hard money lenders make rehab loans on investment properties, the majorityh of them will not do this for owner occupied properties.

I’d keep up your search for local banks. Speak to their commercial officers not retail.

Ok here’s the problem you’re going to run into with traditional lenders or mortgage brokers. First the only thing you have to qualify is a good FICO. Lenders want to see 4 things in great shape: FICO, Debt to Income ratio (DTI), Loan to Value ratio (LTV), Ability to repay/debt service (Income). You don’t have all four. Forget conventional, you won’t get it in this market with the non-conforming issues you have. Go hard money or check out HUD’s 203k loan program:

If a broker is FHA approved they will know this program. If you don’t qualify get a hard money loan (NOO) and rehab then refi to owner occupied and pack your bags! :slight_smile:

I want to first thank everyone for their input and to further clarify that our main problem is not getting the borrower qualified but the property. I don’t know about other markets but here in Atlanta the majority of the foreclosures are listed at a price that is the difference between resale price and repairs. If you consider holding costs, agent’s commissions, and of course profit, it’s hardly a deal for anyone, let alone an investor. So, what I am curious about is who buys these homes and how?

well in that case to answer your question about who buys them…not me! If it’s not a deal then walk.


You mentioned above to purch using a hard money loan, then refi out of that loan into a convential loan. However seems like the issue is finding a good lender who will accept a loan with little or no title seasoning doesn it? With the changes in the lending industry, who are you using that will allow you to refi out of a hard money loan after rehab, maybe even allow some cash out and into a convential (or similar priced) loan on a non owner property with only a couple months on title? Even going SIVA?

I see your in the Sacramento area as well? I am in Lincoln CA :slight_smile:

I responded to this same question on another post as well. There are lenders still offering siva cash out with no seasoning but they make wholesale loans which require a broker.

Is a construction loan an option? A friend of mine did something similar for his personal residence. He purchased a dump using a construction loan and then did a refi into a conventional loan when the repairs were done. The construction loan was expensive, but that is the only way he could get financing.

If your friend went full doc, you should have considered a FHA 203k.


Scott Miller

If this were a true deal (65% ARV - repairs) then I would recommend purchasing hard money, and then refinancing into conventional financing after the rehab is finished.

I am working with 3 investors in this manner now. They line up their hard money and do the rehab, I find the end loan for them with no seasoning requirements on a low fixed rate.