Buying a house with a conventional mortgage means that the house doesn’t need to meet the strict standards other types of mortgages may require. Still, you and your lender will want to be sure that the house you are buying is in acceptable condition. It may need some repairs, but they should not be the type of repairs or so extensive that it will prevent you from getting a loan.
Conventional mortgages typically require a down payment of 20 percent of the appraised value of the house, although some conventional loans require less than that. If you don’t go with a conventional mortgage, you may be using an FHA or VA mortgage, which require less money down but have stricter rules about the condition of the house and property.
If an appraisal shows major issues like a failing roof, non-working utilities, mold or lead paint, you will likely need to complete repairs to continue with the conventional loan.
An Appraisal, Not an Inspection
Even when using a conventional mortgage, the mortgage lender wants to be sure the home is worth the price you’re paying. The appraiser is acting as the eyes of the lender. Remember, an appraisal is not the same as a home inspection. An inspection is considerably more thorough.
Houses are appraised on condition. That does not mean everything has to be in perfect working order, but there are still some things that must be in good order. There was a time when lenders of conventional loans considered little more than termite repairs, but today lenders are more careful.
Exterior Home Features
Property condition is the main factor in assessing a home value. The property should be clean and well-kept to give the best impression. Another factor is the age of the home.
Lead or peeling paint will be a problem if your house was built before 1978 when many types of house paint contained lead. Things like cosmetic issues and style are not supposed to be included in the appraisal, but if the paint is peeling or there are holes in the wall, that will likely be a problem for an appraiser. Many lenders will want the peeling paint corrected before issuing the loan. Any holes in walls or floors of the house should be repaired, and broken windows will also almost always need to be repaired.
Appraisers will consider any health and safety factors before recommending the house be given a conventional loan. An appraiser may require something be fixed as a condition before a loan can be approved. Roof problems are another red flag for appraisers. Many banks want to know that a roof has at least three years of good working life left in it.
Interior Home Features
Inside the house, an appraiser will note the number of rooms, if the furnace and air conditioner work, if the appliances are recent or upgraded and if there's a finished basement or a garage.
Appraisers for conventional loans may have different standards, but many will note obvious defects. A rusted gutter or a loose floor or deck board may need to be fixed before a loan can be approved. Some lenders may require working smoke detectors in each bedroom, even if it's not required by code. If there is any mold or cracks in the walls, the appraiser may want to call in an expert to inspect the cause.
What Needs to be Repaired
If you are the buyer, you should check to see there’s a secure handrail for steps and stairwells. Any raised decks should have a secure railing, while second-floor decks need to have a secure door.
All utilities should be in good working order. If there are any plumbing problems, roof leaks or stains, make sure the seller has them fixed. Check the walls, ceiling and foundation for cracks. Check the foundation to make sure no water is leaking through it.
Electricity is a common reason why a bank does not give a VA appraisal. Even when you are using a conventional loan, you’ll want to make sure the electrical system has enough power to keep the home’s electrical appliances running smoothly.
A Bargaining Chip
If a home appraises for less than the asking price, and there is something visibly wrong with the house, you as the buyer may be able to use that finding as a reason for the seller to lower the asking price. If you like DIY home projects, a conventional mortgage may allow you to buy a home in less-than-perfect condition for more value.