I hate writing this post, because just thinking about it makes me feel grumpy and sad and depressed. But when we were weighing our financing options for this house, there wasn't a post out there about how a 203K loan really works by people who had done one. I wish there had been. It might have saved us a lot of stress, money and heartache. So if you're not interested in the (admittedly emotional, since it's from my perspective) story of our financing for this project, please click away.
This house was at the low end of our price range when we started looking. We had qualified for a much larger conventional loan and had access to some savings but wanted to investigate all our options when it was time to talk financing a house that needed so much work. We asked our realtor and he referred us to a local Wells Fargo office that did 203K loans. HUD explains it much better than I do, so I will let them do it. Our realtor also warned us that it would be a longer closing, and that there was always the chance that we would spend months working on it only to have the appraisal tank the whole thing. The interest rate was so attractive it was going to be best long term decision, and we'd only have to close once, so we had to try. We knew that we qualified for the loan program, but as always the issue was the house itself. We had worked with an estimator before we made our offer so that we would know how much we needed to spend on renovations. We negotiated about $20,000 off the purchase price to make more room in the budget for reno, but we were still concerned that it might not be enough. We asked the mortgage processor what percentage of 203K's he actually closed, and he was surprised at the question but said it was about 70%. We should know better than to ask for odds.
The 203K requires that you hire a HUD consultant to sort of manage the product and ensure that HUD requirements are satisfied. We called the guy recommended by the lender and he came out for an inspection very quickly. We walked him through our planned renovations and he added a few things from his list: tuckpointing and gutters, things that we planned on doing but were lower priorities. It was a very relaxed sort of inspection, since so many things were already being demo'ed or updated. We had our estimator oversee the bid process and during a walk through with the contractor recommended by the lender we discovered mold in the basement. We knew that the basement had been wet, but the entire basement is covered in knotty pine paneling. Behind the paneling mold had crept in. It wasn't too extensive but it needed to be remediated, and as the seller had installed perimeter drainage tile and a new sump pump the moisture problem had already been largely addressed. We were able to get a few quotes for the mold remediation (less than $5,000) and decided to demo the basement and have any basement projects put on hold. The seller agreed to give us a credit for the mold remediation at closing.
So after the upset of the mold issue, the first bid came in just $30,000 below the purchase price. Yes, you read that right. We tried to get new contractors in right away, but it was the holidays and many contractors did not want to bid on a house using a 203K. (They are smart.) We eventually got two new bids in after the first of the year - and both of them were OVER the purchase price. Both the HUD consultant and our estimator were both completely floored by the numbers we were getting. None of the things on our list were particularly difficult or expensive in and of themselves. Was it a product of working with the estimator? Or did we just seem naive and wealthy (which seems pretty hilarious, but who knows)?
The first bid started looking really good, since it was the only bid we got with actual line items. We liked the guys and appreciated their professionalism and experience. So we went back to them and asked to pare down the bid. We fine tuned some numbers, cut some others, and hashed it out. We would do the demo on our own, even though they had to include the number on the bid for the HUD consultant. We asked the mortgage processor if there was a number we should keep the bid below. He told us $75,000. We took him at his word and whittled it down. We had it resubmitted and it was time to order the appraisal. We were running up against the deadline of our original purchase agreement, but we were hopeful.
And then, the mortgage processor quit. Or left. Or was asked to leave. Who knows. He told us this at the same time he said that he would order the appraisal by the end of the day. We got transferred to a different Wells Fargo guy in the next state over. While we thought we were ready to appraise, we ended up spending about three weeks repeating all the paperwork and application stuff that we thought we had already done. The appraisal hadn't been ordered at all. It took us about a month to get all caught up, and the appraisal to come back. We had to ask our seller for an extension, and we didn't think he was going to give it to us. He said that he wanted to fire his agent and relist the house and just start all over. Through some very adept persuasion, his agent managed to get him to extend the contract (and keep the listing, although I doubt she could have wanted it by that point.)
The appraisal came back, and it was bad. In addition to being very low (only $5,000 above the original purchase price AFTER all our renovations were factored in) it was just inaccurate and poorly done. We had thought that we would get two numbers from the appraisal: a current value and a value after renovations. Whether we were just misinformed or whatever there was only one number, which we thought initially was the current value (all right!) but turned out to be the after-reno value (dang). Because of the Wells Fargo regulations we weren't able to just appeal the appraisal. We had to submit it throught 6 different people to get it back to the appraiser, who was some guy from the suburbs picked at random by WF. We sent it back. They refused to change it. We sent it back again. Our agent and the mortgage processor had words. We were told to write our representatives in Congress if we had a problem with the process. And in the end, nothing changed. The appraisal stayed the same.
This might not seem like such devastating news, except that in the 203K process the bid is included in the price. They will loan 110% of the second appraised value (post-reno) but they also require a contingency fund which increases the bid number by 10%. So when the appraisal came back so low, we would have been obligated to bring in cash the difference between the appraisal + 10% and the purchase price + bid number. In this particular instance, it would have been about $75,000. We don't have that laying around, and certainly wouldn't have been able to make two mortgage payments afterwards if we had (our old house and the new house). The seller was in no mood to lower the purchase price, and the whole thing was clearly falling apart.
On top of all of it, the Mr.'s mother was admitted to the hospital and was declining fast. With very heavy hearts, we admitted that we couldn't make this work and we had to let the house go. It was a horrible week, the kind where after a final exam you stand waiting at a bus stop in the pouring, freezing rain with important handouts for a presentation and the bus never comes. (True story). We sent in the 'mutual release' form (which sounds sexy but is 100% not) and headed to the hospital to focus on what was really important.
No comments:
Post a Comment