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Buying a Diamond in the Rough

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By : W.C. Thomas    99 or more times read
Are you in the market for a diamond in the rough. Maybe you're a handyman and enjoy fixing up these homes or maybe it's a budget issue. Is there a point that a lender decides the home is in too bad of shape to take the risk on a mortgage? Is there a point that your mortgage lenders says that the "Fixer Upper" home that you are looking at, is not worth fixing up? Even though you may be a wonderful handyman or maybe this is all that your budget will allow, you need to know what you're getting into.

When making an offer on a property, make sure that you include the provision that the contract is subject to a home inspection. You certainly don't want any surprises after you move in, which could have been discovered during a home inspection. A home inspection is not the same thing as an appraisal. A home inspection ascertains the health of the house you are buying. A professional inspection looks at all of the details such as the age and condition of the roof, plumbing systems, heat and air conditioning systems, and termite damage and much more. When completed, the inspector will give you an inspection report which outlines the major areas of concern, items that are found that need to be repaired or replaced, potential costs involved, as well as photos of areas of concern. When buying homes that are considered "fixer-uppers" some lenders will also require an inspection. Whether the lender does or doesn't, you want to make sure that you have one done for your own peace of mind.

What if you luck out and there are no major problems, just minor ones? Maybe the carpet is worn and needs replacing. Maybe your deck needs a new coat of paint or stain. Maybe the home just needs a little work and some fresh air.

Lenders are usually not concerned with minor cosmetic problems, but the buyers and sellers may negotiate on repairs or replacement costs on these items. Having a good real estate agent, who is a trained negotiator, to deal with these issues is a great value at this point in the deal.

If you want certain things repaired by the seller, such as the mailbox fixed and the deck painted, make sure it is in the contract. If it is, the seller must perform. You may be able to have the appraisal include the repairs spelled out in the contract. This can help you when getting a mortgage, as lenders will only lend on the lesser of the appraisal or purchase price. Just make sure that it is all in the contract.

Occasionally, your seller may ask to perform the repairs after closing. If this is the case, many times a buyer will simply ask for a seller's concession. Let's say that instead of having the home re-roofed before the closing, the seller agrees to reduce the price of the home by the same amount as it will cost to have the roof repaired.

But if you don't have that money in hand to repair the roof, don't expect your lender to give it to you. Even if your contract states that the seller will give you back $5,000 after closing, don't expect it to happen. Cash allowances written into contracts can't happen. The lender will not allow the seller to hand over cash at closing. Your real estate agent should steer you away from this and help construct a sales contract that will please both the buyer and the seller. But don't expect to come home with $5,000. It just won't happen.

The purchase of a fixer-upper can be a great experience. It's your choice how the home is fixed up. But it is a lot of work and definitely not for every buyer or lender. Your best bet is to be completely upfront with your lender about your intentions. This will help the transaction to go smoothly.
W.C. Thomas is the Marketing Director for First Thomasville Realty in Thomasville Georgia. For more helpful information for Home Buyers or Home Sellers, visit our blog.

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