I found a local broker through Zillow, and we applied for a loan. After the appraisal was done I was told the lender would not finance the home because it is a flip. Our credit is excellent, we are pre-approved, and have 20% for down payment. Are we supposed to just take a loss of $500? We were not denied a loan because we were at fault. Isn't a real estate agent and/or a financial broker supposed to check with the lender before the appraisal is supposed to be done? We had no way of knowing such information would affect the loan process. Aren't the professionals in place to look for these problems? We are very frustrated that after 10 days we need to look for another lender and order a new appraisal.
Homework and preparation are critical on all loans, some more than others. One of the things I always find out at the start for any purchase is whether the home is a flip as there are different guidelines for those properties. The agent does not verify lender guidelines with your loan officer, that is between the two of you. Yes, lender should have asked about home prior to ordering the appraisal (or starting loan!), but I also would have mentioned that to him upfront as borrower needs to make sure lender has complete details on both the property and borrower's financial situation.
As a lender, I would ask, too - but even then, sometimes that information simply isnt available. Did you know that the home was a flip? There have been times when both lender and borrower are surprised by that information. Certain loan products do not permit the increase of a home's price beyond a certain percentage in rapid, successive sales ... I would circle back to your original lender to find out whether the guidelines being used to deny your loan are lender specific or product specific - it is possible that you are going to run into this problem again and again. If the price of the home has increased more than 20% in a period of less than 90 days - you are going to have a very, very hard time financing. Period. It may be more prudent to wait it out, and to explain to the seller that they must, also, to get the price they want. Allow the initial price to age and new comparable listings to sell in the subject market so as to justify the price you and the seller have agreed is reasonable. Did the property appraise at or above your price? Did you get that far? Often this is where the problem becomes evident. If the property does not appraise for the agreed price, I know of no lender that will lend against that price - only against the appraised value of the home.
Sorry you had the issue on your purchase. I just closed a flip two weeks ago - it was purchased less than 90 days prior, and the seller rehabbed it. My borrower went FHA, and we needed to get two appraisals, and a property inspection. As a lender, I have added this question to my initial interview. If you need further assistance, please give me a call. I would be happy to look into it for you. Good luck!