Buying A House As-Is: What To Know

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*As of July 6, 2020, Rocket Mortgage^® is no longer accepting USDA loan applications.

You might see a few listings for homes sold “as-is” during your house search. “Sold as-is” homes can be attractive because they’re usually priced lower than similar properties. Before you think about buying an “as-is” home, make sure you fully understand the pros and cons.

Sellers list their homes for sale as-is when they don’t want to do any repairs before closing. It means there are no guarantees from the seller that everything’s in working condition, and they’re not required to provide a Seller’s Disclosure. If you buy an “as-is” home and later find major problems, you’re responsible for the repairs.

“As-is” sellers still need to meet federal and state minimum disclosure standards, which include telling you about conditions like lead paint.

“As-is” doesn’t always mean broken beyond repair. There are many reasons why a seller might list a home as-is even with minor or no issues. The seller may be in debt and not have the money to pay for home renovations. The seller might not have time to wait for contractors to finish a major job. There are also plenty of non-repair-related reasons why a seller might list a home as-is.

Buying a home as-is might be more tempting when the market is competitive. To make sure you're doing everything you can to make a compelling offer, you should also consider applying for a Verified Approval from Rocket Mortgage®. This can help demonstrate your financial readiness to the seller, whether the home is being sold as-is or not.

Before you decide to close on that “as-is” home, consider the following points.

Minimum Property Requirements

Though “as-is” homes aren’t always in disrepair, most homes that are unlivable sell as-is. This can mean a bargain for contractors who can correct these problems. But while you might be up for the challenge of repairing a caved-in roof or a broken heating system, your lender might not be.

Most loan types require that the property meets certain livability standards, known as minimum property requirements (MPRs). A licensed appraiser will perform a home appraisal to assess the property and make sure it meets the required MPRs.

Let’s look at the MPRs for the most common loan types.

FHA Loans

FHA loans are affordable government-backed loans provided by the Federal Housing Administration. To qualify, the home you buy needs to meet minimum property standards for FHA loans. The home needs to be safe for you and your family to occupy at the time of purchase, and it needs to be structurally sound.

In other words, it must not have any physical deficiencies or conditions that compromise its structural integrity. Most homes that need total renovations won’t qualify for an FHA loan.

USDA Loans

United States Department of Agriculture (USDA) loans* are for homes in eligible rural areas (though many suburbs qualify as rural according to the USDA’s definition). Here are a few of the minimum property requirements for USDA loans:

• A structurally sound foundation
• A roof that prevents moisture from entering the home
• An up-to-date electrical system
• Well-functioning heating and cooling systems
• Suitable plumbing and water pressure

VA Loans

VA loans are a benefit of service for veterans and active-duty military members courtesy of the Department of Veterans Affairs (VA). Because VA loans are government-backed, their minimum property requirements (MPRs) are stricter than other loan types. Here are some general MPRs for VA home loans:

• Clean drinking water
• A working water heater and sewage system
• A heating system capable of warming the home to 50 degrees
• All mechanical systems must be in working order
• The roof must be in good condition
• The home must be free of pests

Conventional Loans

A conventional mortgage is one that’s not guaranteed or insured by the federal government. Most conventional loans are also conforming loans, which means they meet the criteria set by Fannie Mae and Freddie Mac – two government-sponsored enterprises that purchase mortgages from lenders and sell them to investors.

Fannie Mae and Freddie Mac allow properties to be purchased “as-is” when there are only minor deficiencies or deferred maintenance. The home must be safe and sound, and structural issues must be minor and due to normal wear and tear.

Here are examples of the kinds of defects that are generally acceptable if you’re getting a conventional loan:

• Worn floor finishes or carpet

• Minor plumbing leaks

• Window screen holes

• Minor window cracks

• Damage to interior walls

• Damaged or missing window screens or cabinetry doors

• Missing handrails

• Damaged or missing trim

• Missing light fixtures, electrical switches or faceplates

• Deteriorated sidewalks

Your appraiser will note these minor deficiencies in the appraisal report. As long as more extensive issues aren’t uncovered during the inspection, the defects shouldn’t interfere with your ability to be approved for your loan.

Home Inspections Are A Must For ‘As-Is’ Sales

If you want to buy an “as-is” home, you’ll definitely want to get a home inspection. A home inspector will let you know all the major issues. This gives you a good idea of what you’ll need to fix and how much it’ll cost if you decide to buy the home.

A home inspection is different from an appraisal and is typically not a required part of the mortgage process. Inspectors are there to look for major issues. Appraisers are there to assess the value of the property. Your mortgage lender will probably require an appraisal, but the home inspection will be an optional part of the buying transaction.

If a seller refuses to allow a home inspection for an as-is property, it probably means one of two things:

• The seller knows there’s something seriously wrong with the home and they’re hiding it from you.
• The seller has a hunch that there’s something wrong with the home, and they don’t want to confirm something that lowers their property value.

Either way, a seller refusing to allow an inspection is your cue to ask questions or get away from the sale as fast as possible.

Know The Cost Of Repairs Before You Buy

Once you have the results of the home inspection, it’s smart to sit down and get an accurate idea of what it would cost to make any necessary repairs to the home. Separate the repairs into “must do” and “can wait” lists and then get quotes from different contractors so you have an accurate idea of the scope of the work that will need to be done after the sale is final.

The Whole Home May Not Be Sold As-Is

“As-is” doesn’t always mean that the entire home is being sold in its current condition. Sometimes, a seller lists a property as-is but only for a specific part of the home. Some common elements that a homeowner may list as-is include fireplaces, sheds and garages, broken appliances and pools.

Ask the seller exactly what “as-is” means with their home. If only certain features are for sale as-is, you may be able to negotiate repair requests on other parts of the home. How much the seller is willing to negotiate with you may depend on other offers they’re received.

You’re Still Entitled To The Required Disclosures

Buying an “as-is” home doesn’t mean you give up your right to disclosures. State and federal regulations dictate what the seller has to tell you about known issues within the home.

Each state has its own disclosure laws on what a seller has to tell the buyer about known problems. Some state disclosure regulations include water damage, mold infestations, termites and even whether someone died on the property. If a seller doesn't disclose a known problem that’s within your state’s list of required disclosures, you may be able to sue for damages or repair costs.

The only current federal disclosure statute is for lead paint. If you’re buying a home built before 1978, the seller needs to tell you if the home has ever had lead paint.

You may be able to use disclosure laws to your advantage as a buyer. As soon as a seller knows about an issue in the home, they have to tell every future buyer about it.

For example, let’s say you live in a state that requires sellers to disclose mold damage. Your home inspection finds mold that the seller didn’t know was there. Alerting the seller to the mold might make them more willing to negotiate with you; after all, they’ll have to disclose the mold to other buyers if you back out of the sale.

A Great Real Estate Agent Is An Asset For ‘As-Is’ Sales

A licensed real estate agent can be an invaluable asset when you want to buy an “as-is” home. Real estate agents are local experts who understand disclosure laws and the home buying process. Experienced real estate agents can explain in more detail exactly what buying an “as-is” home means for you. This can give you more confidence when you decide to close.

They can also recommend when not to buy. Some homes may need extreme repairs, which would cancel out any savings you’d get by buying the home. Experts say you should put away 10 – 25% of your budget for repairs when you buy an “as-is” home. However, an agent can help you come up with an accurate budget for your situation.

Home Warranties Can Offer More Protection

If you buy an “as-is” home that doesn’t need a complete overhaul, you can protect the working appliances in the home with a home warranty policy. Home warranty policies cover your home’s appliances and systems.

While the warranty probably won’t cover appliances or systems that are already damaged, they can help you cover the cost if something else goes wrong. Home warranty policies can be a smart idea for homeowners who buy “as-is” homes, especially if the home is older.

Here are some of the best home warranty companies to consider during your search.

*Note: The pricing of premiums tends to vary based on plan, location and service fee selected.

So, is buying an “as-is” home really worth it? Before you decide if you should buy an as-is house, ask yourself a few questions:

• Do I have money to make repairs?

• Am I prepared to deal with major structural or system damage?

• Do I have a place to stay if the home is uninhabitable?

• Do I have money for an inspection and an appraisal?

• Do I have a trusted real estate agent who has experience with “as-is” sales?

• Am I buying this home not as a first property, but as a second home or an investment?

If you answered “yes” to all of these questions, an “as-is” home might be right for you. Make sure you consult a financial advisor or real estate professional before moving forward. If you do decide to put in an offer, a real estate agent or REALTOR® can help you submit an offer that will be competitive in the market.

If you answered “no” to any of the questions above, or if you’re still undecided, you’re probably better off working with sellers who are ready to negotiate. Anticipating buying in a competitive market? Getting a Verified Approval can help you demonstrate your financial backing to sellers.

Sellers list their homes for sale “as-is” when they don’t want to do any repairs before closing. “As-is” properties may seem like a bargain, but the truth is that most contain hidden issues that can cost new owners thousands in repairs.

If you think an “as-is” home might be right for you, knowledge is power. Take plenty of time to schedule expert inspections and understand the real condition of the home before you decide to buy.

If you’re ready to take a step toward buying an “as-is” home, get approved with Rocket Mortgage^® today.