Before you start reading…please note that I am not a lender, an appraiser or an inspector.
So, today I ran into a client who was hoping to purchase a bank owned property that needs quite a bit of work done to it. This home north of the Twin Cities needs a new furnace, the gas line is not hooked up to the house, it is missing smoke detectors and it is missing quite a bit of copper. So, you ask, where does the problem come in? The problem is this…
1. With FHA financing the lender will not lend or insure a property that has issues like what I have listed above. They would require some of these things (and each house is it’s own case by case situation….) to be repaired PRIOR to closing.
2. When a property is bank owned it is typically sold “as is” which means the bank will not make any of these repairs for you in advance of the closing. If the property was still owned by a private citizen, you could ask them to make the repairs first.
3. Also, the bank will not let you, as a potential buyer, come in and do any repairs on your own. They do not want the insurance risk and ultimately, are not “general contractors” to oversee your handy work. Also, it would not make sense for you to spend the time and money doing any repairs on your own either because the bank could change their mind and end up NOT letting you purchase the property and of course, the bank will not pay you back but they will gladly take advantage of the work you have done.

This is not to say that you can’t buy a bank owned property with FHA financing, you certainly can, but you will probably want to look at something that does not need alot of major fixes like furnace, plumbing or gas.
Again, each property will be assessed individually by an FHA inspector but my advice would be to stick to buying something that only needs some cosmetic updates unless you are buying with a conventional loan, cash or a rehab program like 203K.
For more information about 203K take a look at HUD’s website. As always, for lending information you should contact a reputable lender in your area. I recommend Cornerstone Mortgage located in Burnsville MN.

Jen McKinnon
Realtor/Investor
612.384.1073
jen[at]mnrealestateteam[dot]com