Expert: Dick Dennis - 8/23/2010

Question
I'm looking at a property that needs work.

Here's the catch 22 ... the bank won't finance it,
until the things that need fixing get fixed, and that
could cost thousands of dollars ... things such a mildew,
new shingles, pumbing repairs, and a new septic system.

Can I get the bank to aprve the purchase, and then escrow
funds for me to use to make the needed repairs, or will I
have to agree to fix these things and obtain an occupancy permit, before I have a bank closing? (The Seller allow me a reasonable period of time to do the work needed to get an occupancy permit, to satisfy the bank for the mortgage financing.)

Answer
Never, never do or pay for any work on a house until that house is in your name, Dennis. I could stop there and that would be enough.

However, there are ways to handle this transaction. You can ask the bank if they will indeed put the necessary funds in escrow so that you can take from those funds as needed as you repair. But my bet is that they will not do it until you actually have the work completed and have some of your own money into it.

That means you are going to have to find a HARD-MONEY lender. That is a company or individual who will lend you the money once you have shown in black and white what the cost of the work will be, just what a regular bank would require. Some hard money lenders will not lend until they see you have 30% (or thereabouts) of the purchase price into the property.

Another hard-money lender might take title to the property alone or with you and when the job is completed, the lender gets paid when you resell the property and you both share in the profit.

In any case, hard money lenders usually charge a high interest rate and possibly additional fees. If it is your intent to not resell the property for a profit, then you better have something like 30% of the purchase price into it. A regular bank might be willing to lend you the money for the total fixup if you did put 30% into it.

Maybe you have a friend or relative who could lend you the money and let them share in the ownership and/or any profit when and if you do resell the property. I do wish you well.

Dick Dennis
dixiedee13@aol.com