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You should understand what is going on here

Posted by TomR on December 28th, 1999 02:13 AM
In reply to Need to add heating vents by Deb in PA on December 27th, 1999 12:52 PM [Go to top of thread]

I think it is important to understand what the mortgage company is basically telling you.

Unheated rooms cannot be counted as living space. The fact that the mortgage is dependent on you converting the 2 unheated rooms to heated space means the rest of the home, that is, the square footage of all the currently heated living space in this home, is not sufficient to justify what your paid for it.

To give an example, lets say you agreed to pay the owner $100,000 for the home and the mortgage company requires a Loan-To-Value (LTV) of 90%, which means they will loan you $90,000, and you will need to put down $10,000. All this is fine so long as the home appraises for $100,000 or more.

Letís also say the home is 1350 square feet total, including the 2 unheated rooms.

Well, the home is worth $100,000, but the appraiser comes along, notices the 2 unheated rooms, and knocks 350 square feet off the total size of the home. Now the home is only 1000 square feet, and based on other 1000sf homes in the area, your new home is worth only $85,000.

Using their LTV of 90%, they will only loan you $76,500. Since you agreed to pay $100,000, you would need to increase your down payment to $23,500. Either that, or the 2 rooms in question need to be heated so the home appraises for the full $100,000.

The more prudent action, in my belief, is to get out of the deal, especially if you are that strapped for cash. I do not know the details of your transaction, but the inability of securing a mortgage, for most reasons other than your lying on the application, releases you from the obligation of completing the sale.

If you are in Pennsylvania (like I am) the seller would have needed to disclose the fact that these rooms were not heated, and therefore not part of the appreciable living space. This may also provide you with a legal out, with the seller refunding you all the moneys you paid thus far. I would at least make it his responsibility to do the upgrade work at his expense, if you wish to proceed with the purchase.

This is where you really need the services of a real-estate attorney, not a real-estate agent.

Good luck.

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