I'm buying a two-unit investment property directly from the seller (no Realtors involved). The purchase price is $110k.
I am trying to get a conventional loan through a large national bank. Everything went smoothly until the appraisal came back. The house appraised at $140k "subject to" repairs to the exterior (which needs repainting and replacement of some of the wood siding). The appraisal didn't assess the home's value in its "as is" current state.
The appraisal report estimated that the cost of repairs would total about $15k. I got an estimate from a contractor for performing the same repair work before even making an offer on the house, and his estimate was right around that same number.
The bank is telling me that they won't approve the loan unless the repairs are made before closing. There is no way the seller is going to do the repairs himself, and I am not going to pay to have them done before I own the house, of course (although that is what the loan officer ludicrously suggested I do -- I think she is new at her job).
I have two questions. First, is the bank being unusual or unreasonable in denying the loan without the repairs being made before closing? Here's why I think the bank's position is unreasonable: Both units of the house are currently occupied, with tenants paying fair-market rates (according to the appraisal). The house certainly needs a coat of paint and siding replacement in some places, but it is by no means structurally unsound or uninhabitable. I am buying the house for $110k with 25% down and the house appraised for $140k -- so the LTV ratio remains well above the 80:20 threshhold even with the cost of repairs factored in. I have excellent (800+) credit, have about $500k in assets (of which ~$200k are totally liquid), make about $150k a year and have zero debts (I own my personal home free and clear) -- so it's not like I'm just squeaking by when it comes to buying this house. Frankly, I think the bank is being silly in wanting to deny me -- a very good applicant -- a loan for a relatively small amount of money (relative to my income and assets) for a house that appraised for well more than the purchase price. But maybe I am failing to see things fairly from the bank's perspective.
The second question is: How do I move forward? As I see it, I have three options:
- Try to figure things out with the current lender. If I do this, any advice on how to proceed? Should I try going over the loan officer's head, for example? Or insist that they get the appraiser to re-appraise for the as-is value of the house, rather than the value subject to repairs? (Why they didn't appraise in as-is state originally, I have no idea.)
- Try getting financing from another lender. Ideally, I'd hope to be able to use the same appraisal because I've already paid about $800 for it. But I'm not sure how hard this is to do, and I don't want to end up back in the same situation with another bank.
- Buy the house in cash, which I can comfortably afford to do using my $200k in liquid assets. I'd just prefer not to tie up so much money in this property. Plus, if I buy in cash, then the money I have already paid for the appraisal definitely goes down the drain.
I know I could likely do a rehab or construction loan as a fourth option, but that seems like overkill for a house that needs a relatively minor amount of work, and given that I can pay for that work very comfortably using cash.