What to know when buying a home that needs "systems" repairs

Last night I got a call  from a buyer who wanted to see a foreclosed home. She had called the listing agent, and the agent told her the house was a mess, and discouraged the buyer from even seeing it. Turns out that this buyer is not currently represented and knows a friend of mine, who told her to call me. So we set up an appointment to see the house this morning.

I'm not even going to rant about how that agent broke ethical code to her seller by dissuading a potential buyer, I'll just tell you about the house that we saw. The previous owner had purchased this home to make "a quick buck", and was going to remodel it and re-sell it. Unfortunately, he overspent for the house in the beginning, and midway through the renovations, he ran out of money, and the market turned. He tried to hold on to it with the bank, but it ended up being foreclosed.

When we arrived, the back door was unlocked and open, and the garage door was unlocked, and we had the contractor go into the house just to check that there were no unauthorized residents inside. The coast was clear, and the kitchen was nice enough- that made it through the  remodel. The hardwood floors were re-done, however they were somewhat wavy and buckled due to moisture and what have you. Not a big problem there- some sanding ought to handle that. The bathroom was remodeled, too, and essentially the house was pretty much ok... until we went into the basement to check out the componenets of the house.

The furnace was in pieces, and obviously not operating, and there was a BIG NOTE attached to the wall that the septic tank was not operational.   (It would have been nice if the agent mentioned that in the listing, but that wasn't the case- she did not even mention it on the phone with the buyer, either.)

As far as getting a mortgage on a home, the home has to be functional (heating, water and sewage systems need to be working) in order to obtain any type of conventional loan. So what does that mean for this buyer, or for you, given the same or similar set of circumstances? It means that besides having your downpament monies, you will need to have enough to fix the necessary components of the home as a contingency of getting the loan... or you would have to apply for a specific type of loan offered through the FHA, (called a 203K) where you get incremental amounts of money to re-hab the property. In that case, the property will have to appraise for the total amount of not only the purchase price, but the rehab costs  as well. A headache for most buyers. Not to get discouraged, though- all foreclosures are not in this bad of shape, just be prepared in mind and wallet for what comes ahead.