So you're buying a fixer-upper? The house looks good, needs some work and is in a desirable neighborhood. But what might seem like a great fixer-upper property could actually be a money pit. Let's look at some common, potential issues with a home that could easily derail an appraisal and your mortgage.
Here are some common red flags that could halt your loan –- and they come up more frequently than one might think. And just a note: It's all about the appraisal and contract. If the problem isn't listed in the appraisal or listed as a condition of sale within the purchase contract, it shouldn't delay or deny your loan.
Roof: Many resale homes have worn-out roofs that must be replaced at some point down the road, some much sooner than others. In this situation, your real estate agent is bound to identify it right upfront. Get at least a couple of quotes to determine how much shelf life the roof actually has, and the costs associated with repairing or replacing the roof if need be. If the roof is shot (or worse -- has a leak), and it's identified in the appraisal as "subject to condition," it will have to be fixed in accordance with the appraiser's comments. It will also mean a second visit from the appraiser to sign off on the completion of the repair.
Open Subfloor: This one is biggie. Open and exposed subflooring is an automatic red flag because it presents a potential health and safety concern for the buyer of the property. As such, this is guaranteed to stop the loan, and the appraiser will be mandated to notate it in the appraisal as a condition that needs to be satisfied to make the property lendable.
Exposed Wiring: This seems obvious, right? Well, in many cases homes have exposed wiring either on the exterior or the interior of the home, which poses -- you guessed it -- another health and safety concern. It would be best to repair any exposed wiring prior to the appraiser visiting the property for the first time.
Dry Rot: Whether or not a rotten area is viewed as a condition of hazard depends on the individual appraiser. In most cases, appraisers simply want a rotted area repaired to make an appraisal clean -- and also to cover their backside, so to speak.
Pest Damage: If there is large-scale pest damage -- for example, if any average Joe can see obvious termite or pest damage when viewing the home -- then yes, it's probably going to be need to be fixed. However, it's more common to see it identified as a condition of sale in the real estate purchase contract -- at which point it must be fixed.
Who Pays for the Repairs When Buying a Fixer-Upper?: Such repairs could be paid for by buyer, seller, listing agent or buyer's agent. More commonly, the buyer typically pays for such repairs to the property, but this is always negotiable. It can be paid by any one of these parties, even be split multiple ways.
As an informed home buyer, you'd want to make sure your loan is approved with the lender prior to making any repairs. The last thing you want to deal with is fixing repairs on a property you don't own yet when you're loan hasn't been signed off.
There are other repairs that inevitably come up when looking at properties, including the property needing a CO2 detector (which is a law in many states), obvious repairs such as broken windows or an unstable deck are all examples of health and safety concerns. It's not the lender that delays the loan in these situations. Rather, it's the scope of the repairs as notated by the appraiser, as well at the time it takes to have those items repaired, that can slow down the lending process.
Whatever the case may be, proactively communicating with your mortgage lender and real estate agent about any repairs that need to be done is the best course of action to take to ensure the financing for your purchase comes through.
The plumbing under a kitchen sink. The ‘extra’ supply lines and the flexible drain line are to a clothes washer in another room. The angled line under the left basin is an open hot water line. It disappears into a wall. Note the S trap and exposed wiring.