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Buying a diamond in the rough

It may be your budget or the thrill of doing it all yourself, but you are looking for a diamond in the rough. But how difficult can a home be before a lender decides not to risk a mortgage?

When negotiating the contract, be sure to include a provision for a home inspection to check for structural integrity, defects, and potential problems. This is not part of the appraisal, it is a separate detail. A home inspection determines the health of the home you are purchasing. Whether it’s a bad roof, leaky pipes, or termite damage, a professional inspector will find all the major problems. As part of your report, you will receive a list of what needs to be repaired or replaced, the time frame, and the potential costs. If you are buying a home for repairs, your lender may require an inspection. Some will and some will not. But you must insist on one to protect your best interests.

What if you are lucky and there are no major problems, only small ones? Perhaps the carpet is worn and needs to be replaced. Maybe the cover needs a little work. New paint and fresh air may be all you need.

Minor and cosmetic concerns are generally not strong enough to scare off lenders, but could lead to negotiations between buyers and sellers. Unless you’ve done this before, you may find a good broker invaluable in negotiating for you.

If you want the seller to repair certain things, like the mailbox and painted cover, make sure it’s in the contract. If so, the seller must comply. You may be able to have the appraisal include the repairs detailed in the contract. This can help you get a mortgage, as lenders will only make loans on the lower appraised or lower purchase price. Just make sure everything is in the contract.

Occasionally, your salesperson may request to make repairs after closing. Many buyers simply ask for a seller’s award. Instead of installing a $ 5,000 carpet prior to closing, the seller agrees to reduce the purchase amount by the $ 5,000 it will cost the buyer to install a new carpet.

But if you don’t have that $ 5,000 on hand to buy your rug, don’t expect your lender to give it to you. Even if your contract states that the seller will give you back $ 5,000 after closing, don’t expect it to happen. Written cash allocations in contracts cannot occur. The lender will not allow the seller to hand over cash at closing. Your real estate agent should steer you away from this and help you build a sales contract that will please both buyer and seller. But don’t expect to come home with $ 5,000. It just won’t happen.

Buying a repair home can be rewarding. You can choose how you want to improve the house. But it’s a lot of work and definitely not for all buyers or lenders. Your best bet is to be completely honest with your lender about your intentions. This will help the transaction go smoothly.

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