203k Spinoff - Buying a house whose pipes froze?

[morgie44]

I occassionally lurk over here and saw Mrsspunky's 203k post and had some related questions, but didn't want to threadjack.  Long story short.  We had been under contract to buy a house since November.  It was  a short sale and unoccupied.  During the time that we were waiting for the SS to be approved, the pipes froze.  There is no water damage to the property, so it looks like it was discovered while the pipes were still frozen.   

We still loved the house, so wanted to try to move forward (with a price reduction).  We had a family friend/plumber come out to price out repiping the house and he quoted us 6k for materials and something for his time, as well as a carpenter to replace any opened drywall.  This seemed really reasonable to us, and we wanted to move forward, but  our lender said that we cannot get a conventional loan because the house is uninhabitable without running water and that our only option was to do a 203k loan, which he said is a huge headache.  I know if we did move forward with the 203k, we would have to use an FHA approved contractor, so the our plumber would likely be out.  We still love and want the house if we can get the financing, do we have any options here?  I get the feeling our realtor is not really interested in helping us explore the issue.  We could tell she didn't like the house from day 1 (she is DH's cousin, so while no real vested interest, she has been more candid with us than she normally would be, and she definitely likes new contruction houses and is trying to steer us that way.  This house is 100 years old, so night and day. 

[hausfrau]

It sounds like from the description of the work, you would only need to do the Streamline 203k loan, which is actually less of a hassle than the full 203k loan. With Streamline, you get up to $35k in repairs, and none of the work can be large structural changes (no moving walls or additions). If you lender is not familiar with the 203k process, you might search around and find one who is (you can search for someone via HUD's website).

You don't have to use someone that is "approved" as your contractor, instead you will need to submit two or three bids from contractors that meet requirements (licensed and bonded/meet your jurisdiction requirements). You can use your family friend as long as he submits the proper paperwork, which they can walk him through. He will get two draws on the project -- half at the beginning of the work and then the rest of the payout after the work is signed off and approved.

I'm actually going through the 203k process right now with a duplex we are converting to single family. If you find a lender that will walk you through the process and help answer your questions (you can also call HUD and they will help you too), it isn't terribly scary, just a bit time consuming. Here's the info for the Streamline 203K: portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/203kslrp.

[new2this2]

I would totally buy a house where the pipes had frozen. I may or may not have frozen one of our pipes this winter... whoops. My advice is to put several valves in so if you do freeze another pipe it's easy to turn off the water. We were very thankful that was the case in our house. It was built in 1910 so clearly someone redid the pipes. We can turn off water to half our house and still have it in the other house (so still have a working bathroom!).

[goaskalice]

Like pp said, with the streamlined you can use your uncle, but you have to get multiple bids. Basically FHA picks the price based on the multiple bids then whomever you choose has that amount to work with.

The issue I see is that the bank may not approve a extension to close so you can get the proper paperwork in order to close a 203K. That would be stupid on their part, but we all know banks do not work in their best interest when it comes to short sales sometimes.

I would find out who does 203K loans in your area and chat with them. The most important part will be having a good solid lender who knows what they're dealing with.

Good luck!

[morgie44]

Thanks for the tips. We still haven't received the official short sale approval, so we have a little bit more time, I think. They are also aware of the change in circumstances, so hopefully that will work in our favor.