I am approved for an FHA loan and have found a property that I want to buy. The problem is that the house has no A/C units (stolen). The house is vacant and bank owned. I don't qualify for conventional.
My lender said that the only way I can buy the home is if I purchased the A/C units and have them installed before close of escrow. That way I may use FHA for funding the home. He said I can have it all done the day of the signing to minimize the risk. The risk is that if the A/C units are installed and paid, before I own the house I can loose my money for the A/C units and the installation if the escrow does not close for any reason. The A/C and installation can cost around $6000. Has anyone ever heard of this type of situation before? What's the odds that I can loose? Is this legal?
I wouldn't say this is typical. It exposes you to some real liability. I would suggest you try to reach an agreement with the owner to reimburse you in the event you can't close, or get a commitment from the lender that they will definitely close if you make the repairs, or preferably both. If you can't, then you have a choice to make. Know, however, that if you choose to do the repairs and then you can't close for some reason, you can sue the owner for "unjust enrichment" to recover the value of the repairs.
Responses are for general information purposes only, and are based on the extremely limited facts given. A consultation with an attorney experienced in the area of law(s) indicated in the question is highly recommended. Information and advice given here should not be relied upon for any final action or decision, as the information is limited by its nature to the question asked and the fact(s) presented in that question. THIS RESPONSE DOES NOT CREATE AN ATTORNEY/CLIENT RELATIONSHIP, particularly considering that the names of the parties are unknown.
I understand that you are already approved for an FHA loan on a home that has no A/C units.
I suggest that you ask your realtor and lender about a 203k loan. This type of loan requires a minimum of $5,000 toward eligible repairs or improvements and that you complete the repairs within six months after the loan’s closing depending on the extent of work to be completed. This first $5,000 primarily covers eliminating building code violations, modernizing, or making health and safety-related upgrades to the home or its garage. You can add in minor or cosmetic repairs, but you cannot add in commercial use items or luxury repairs like a swimming pool.
The total amount of your mortgage will be based on the projected value of your home after the renovation is completed, taking into account the cost of the work. A portion of your loan is used to pay for the purchase of the home, or in the case of a refinance, to pay off any existing debt. The remainder is placed in an interest-bearing escrow account on your behalf and released in stages as rehab is completed.
There are other rules that you must be mindful of as well. However, this allows you to purchase the house, as long as all the rules are met, without you having to come out of pocket with your own money. FHA has set up this type of mortgage to prevent the situation of losing all your repair money if the contract for purchase does not close. As you are already FHA approved, make sure to see if this house qualifies for 203k mortgage underwriting.
A 203k mortgage is a specific type and requires a lender and a realtor who know exactly how to manage all your risks to ensure you receive the best mortgage and the correct repairs. You do not necessarily need to contact an attorney, but it is best to consult with one anyway.
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