Investors looking to buy “fixer uppers” that are in poor condition have only a few options.
Hard Money or Private Money/30%+ Down: These lenders do not care about condition, but they do require 30% down or more, and their rates are in excess of 10%. In addition, they charge from 3 to 5 points.
Fannie Mae or Freddie Mac/20% Down: Investors can put down only 20% and obtain extremely competitive “Investor Financing” (“low 4%” range for “no points” still), but the properties cannot have glaring condition issues (leaky roof, water damage, exposed wiring, missing windows or floor coverings, etc.).
Properties can have condition issues that are not readily apparent to an appraiser. An obvious example is a property that still appears relatively level but has major foundation issues.
Suggestions Prior to Appraisal of Fixer-Upper:
(1) Be sure to scrub the MLS and Internet Listings of any references to condition issues. Appraisers and underwriters search these sources, so keep the info generic.
(2) Send a handyman to the property to “spruce up” the property before the appraiser arrives. This includes fixing broken windows, cleaning up debris, slapping down floor coverings (of any quality), painting water damaged areas, patching holes in walls, and addressing health and safety issues like exposed wiring (slapping up some drywall) or broken stairs. Missing “built in” appliances need to be replaced too.
Even though a handyman often cannot address every issue, just the fact that the glaring issues have been addressed will often spur appraisers to give you the “benefit of the doubt.”
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646