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I'm attempting to purchase a rental property. I have 20% to put down. The house is old and came back with a C4 appraisal. I agree that there is deferred maintenance. Now the Broker is saying their lender will approve the mortgage but their investors, who then buy the mortgage, I guess, won't. Should a C4 appraisal kill this deal? Shouldn't the broker have required the appraiser to give a cost to cure to bring the property to a C3 if they can't get a mortgage on a C4 loan approved? I'm finding this very confusing. The value was there according to the appraisal, there is a tenant in place.
There shouldn't be a problem getting a loan on a property rated as a C4. If the appraisal mentions deferred maintenance, it sounds like it might be currently a C5, which would be a problem. Look on the appraisal at the bottom of the page, below the comp grid, and see if it is "subject to". It may be that the appraiser included things that need to be done to bring it up to a C4.
This is from the appraisal: Describe the condition of the property (including needed repairs, deterioration, renovations, remodeling, etc.).C4;No updates in the prior 15 years;Functional
obsolescence due to room arrangement, no bedroom closets, not all windows open; it is unknown if the space heater in the living room is adequate
to heat the house comfortably. No external obsolescence. The subject reflects physical depreciation and deferred maintenance. Door trim is
scratched, wall paper torn, linoleum worn out and/or damaged. No water in one bathroom sink faucet
Is there something I should be asking/telling the mortgage broker?
That sounds like a C5 house to me. It seems that the appraiser was trying to give you a break by calling it C4, but the investor saw through it. C4 is "adequately maintained with minor repairs or updating needed". Sounds like there are bigger problems than that.
Since the deal is falling through, it certainly doesn't feel like a break. If it was a C5 shouldn't he have called it a C5 with a cost to cure. Essentially I was unable to get financing with no recourse of being able to go to the seller and call for the repairs or of being able to put money in escrow to do the repairs/upgrades. It's a very small house and so all of these issues are actually pretty minor.
This is from the appraisal: Describe the condition of the property (including needed repairs, deterioration, renovations, remodeling, etc.).C4;No updates in the prior 15 years;Functional obsolescence due to room arrangement, no bedroom closets, not all windows open; it is unknown if the space heater in the living room is adequate to heat the house comfortably. No external obsolescence. The subject reflects physical depreciation and deferred maintenance. Door trim is scratched, wall paper torn, linoleum worn out and/or damaged. No water in one bathroom sink faucet
Is there something I should be asking/telling the mortgage broker?
Look at the bottom of the next page, see what box is checked. Is it "As Is" or "Subject to:"?
Is it a FHA loan? If you can go conventional, you may be able to try a different lender, which would be a new appraisal and possibly a different outcome.
It was a Conventional loan. I think I could go to a local bank and have a better result. Meanwhile, though, I am out $650 for this appraisal and I just found this unreasonable. The owner was a motivated seller and would have fixed the linoleum and wallpaper. The faucet was turned off because it dripped, so a washer would have fixed that. The so called "space heater" was a fixed gas heater that vents to the outside and the tenant says it works fine. So why was there no opportunity to address these issues. I just find the real estate business very strange. First of all we had issues where it took more than 3 weeks to get an appraisal even scheduled, so we actually had to do an amend/extend, then the appraiser undervalued the property due to undervaluing the land, so more amend/extends. I feel terrible for the seller because it kept dragging on and on and now to top it all off we can't close because the lender calls the appraisal unacceptable. I know the mortgage broker invested time but I end up feeling financially ripped off.
That's what happens when you try to get a loan on an as-is money pit. If you never fixed it and foreclosed they would be the ones stuck with all the debt and repairs and no lender wants that. Get it fixed and re-apply or go try another lender if you really want it. Sounds to me like they saved you from buying a dump you couldn't afford to repair to me, I would consider that $650 well spent.
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