Q: Why is it so difficult to find a mortgage company that will finance a house that may need a roof?

A: If you have done any house hunting in the universe of foreclosed properties, and compared them — their condition, that is — with the nonforeclosed homes in the same area, one thing becomes immediately clear: On average, foreclosures are in worse shape. And that makes them difficult to sell without a steep discount.

Lenders extend financing on guidelines that have the end in mind: They both want to avoid foreclosures, and want to minimize their own exposure in the event a loan does end up in default.

So, if you keep running into scenarios where you’re looking at homes with bad roofs and struggling to find financing to buy one of them, keep these things in mind:

1. The federal government has health and safety guidelines for roofing that apply to many home purchases. Here’s a little bit of the backstory on how lending works these days: Well over 90 percent of the mortgages originated on today’s market are backed by the federal government. You might think that you’re immune from kooky condition guidelines if you opted not to get an FHA or other "federal" loan (i.e., VA, USDA, etc.), but the truth is that most "conventional" loans will eventually be sold by the mortgage lender to some federal agency, so the lender can put that money back to use making more loans. And all these federal agencies impose guidelines on the condition of the homes that secure mortgages they buy.

Of course, FHA guidelines are notorious for being the most stringent when it comes to property condition, and roofs in particular, so if you’re planning on using an FHA loan and you keep running into this issue, talk with your lender about whether you might be eligible for another type of loan without such strict standards, or even an FHA 203(k) rehabilitation loan, which is specifically intended to fund the purchase of homes that need work.

FYI, here are the Department of Housing and Urban Development (HUD) guidelines for roofing that apply to all FHA loans; these are generally intended to protect the health and safety of residents of FHA funded homes:

Roofs: The covering must prevent moisture from entering and provide reasonable future utility, durability and economy of maintenance. The appraiser must visually examine the roof to determine whether deficiencies present a health and safety hazard or do not allow for reasonable future utility. (4905.1 REV-1, 2-12.)

Life expectancy: The appraiser must exercise sound judgment when evaluating roof condition. The roof should have a remaining physical life of at least two years. If the roof has less than two years of remaining life, then the appraiser must report this condition in the appraisal report.

2. Lenders don’t want the repair costs to foul up the financing. First, lenders want to be sure they are not green-lighting a loan where the price is not appropriate, given the condition of the home. Having roofing guidelines that prevent such homes from being financed creates an incentive for sellers to execute the needed repairs in advance, or to allow for a piece of the purchase price to be held in escrow for the repair.

This does double duty, making sure the home is not overpriced and ensuring that the buyer will not have to come up with the cash to make an emergency repair. The lender has reviewed the buyer’s financial ability to pay for the home on a month-to-month basis, not his ability to pay for the home and a $6,000 roof when it fails one month. The reality is that such a big, emergency repair bill can be the reason a buyer falls behind on his mortgage, and lenders don’t want that.

3. Homes in bad shape are more prone to foreclosure. Time and time again, I’ve seen homeowners who were so excited about their fixer-upper walk away from it, mid-fix, when: the market takes a turn for the worse; they run out of money; they realize how much more the fixing will cost than they had planned; or they suffer a job loss or other personal problem.

In those cases, not only does a lender end up with a foreclosure on its hands, but it ends up with a half-fixed foreclosure that will be tough for a buyer to get a mortgage on. This is just one more of a meaty list of reasons lenders avoid extending money on homes with bad roofs.

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