Using a VA or FHA Loan to Buy a Bank Owned Home in Orange County?

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Using a VA or FHA Loan to Buy a Bank Owned Home in Orange County?

Orange County REO Homes for Sale + FHA or VA Financing = Some Things to Watch Out For

So you are ready to make the move off the “I’m one of the hundreds, if not thousands, of Orange County home buyers who can finally get into the Orange County Real Estate market but are sitting on the proverbial fence, waiting for the bottom of the market to finally arrive” because you’ve decided that mortgage interest rates are at historical lows and you’ve found the home that works for you.  Congratulations!!  Best move you’ll make this decade.  But here’s the 411 on your upcoming purchase – if you are using FHA or VA financing and are buying an REO (also known as Bank Owned of Lender Owned) home in Orange County today.

FHA and VA Loans Have Property Condition Requirements that MUST BE SATISFIED

The main thing you need to know is that FHA and VA loans require that the home be immediately safe and “livable.”  Like, it needs to have a furnace (I’ve seen some lately where the furnace is missing!) and the furnace needs to actually blow hot air.  Something you would want to have, right?  Your new FHA or VA financed home in Orange County also needs to have a stove.  You’d want some hot food with your dinner, correct?  How many Orange County REO homes for sale have you looked at where the stove is missing?  I can’t count that high on my fingers and toes combined.  Cracked sink?  Inoperable shower?  No hot water?  Fence falling down?  M-O-L-D (gasp and get your gas mask on)? Missing tiolets?   These are all likely to be cited by your FHA or VA appraiser as being “Appraisal Conditions” which must be cured, fixed, replaced, remedied, or some how made right and good before you can get the loan to buy your dream home.

What Does an Appraisal Condition Mean and What Can You Do About It?

You are in escrow on your Orange County dream home and you get slammed with the dreaded Appraisal Condition.  What does it mean and what do you do?  You pray you have a great Realtor and a great Lender, then you get to work.  Most recently, I have seen Appraisal Conditions met by having my buyer agree to additional inspections and for-fee proposals to remedy all of the Appraisal Conditions – this done through my leg work and connections with trades people, general contractors, and HVAC professionals.  Then I negotiated with the agent representing the lender, and we hatched a really workable plan.  But here’s the catch – no one in the transaction had any money to put in to the deal to fix all the things that had to be fixed before the deal could be closed.  Let me make that point perfectly clear.

  • When buying an REO, the bank has already lost money and will not pay up front to buy a stove or fix the furnace.  Very unlikely to happen.
  • You are tapped out as it is, with your down payment and closing costs – and why would you pay to have a stove, furnace, sink, or toilet installed on a home you don’t even own yet?
  • Your Realtor can’t throw you a bone here – she hasn’t gotten paid yet.
  • All of the Appraisal Conditions can be move from “Prior to Doc” to “Prior to Funding” requirements – if you have a super smart Realtor and an equally intelligent Lender – this buys everyone more time.

Here’s a Creative Solution to the FHA and VA Appraisal Condition Requirement

Upon Final Loan Approval, meaning you loan has gone all the way through Underwriting and has been approved beyond revocation by the lending institution, then request the seller to pay for the necessary repairs (because if he needs to do it to get your loan through, he has a 70% chance of having to do it for the guy behind you, if he cancels your contract) by releasing your deposit to pay the repairs directly to the vendors.  Oh – there’s the other hitch in this giddy up – no vendor will bill for these repairs through escrow.  Not in this economy.  So, your seller agrees to release the deposit to pay the bills to fix the broken stuff to pass the appraisal re-inspect to get the loan to buy the house of your dreams.  Simple. Problem solved.  Any more questions on buying an REO in Orange County using FHA or VA financing?  Text me. Send me an email. Message me on Facebook.  Or do it the old fashioned way and give me a phone call – 949-678-3373!

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