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If the Property Doesn't Conform to Specific Appraisal Guidelines, You Won't Be Able to Get a Loan.

Over the years, I've gotten lending requests for some fairly unusual situations. I recall a property in southern California where the owners went a tad overboard in renovating their home. Originally, the home was built as a three-bedroom house, just like most of the homes in the area.

But in the early 1990s, the new owners gutted much of the house and redesigned it to fit their own "style." They got rid of two of the bedrooms and made a huge library and reading room with a fireplace. Sounds nice so far, right?

In the main room, they wanted to expand the fireplace that was currently there by adding imported Italian marble. This cost them a fortune, but it was their taste. The updated fireplace was massive and had a price tag close to $50,000—in a house that probably would sell for $300,000.

Soon, they decided to sell their masterpiece. Who wouldn't buy this house, right? After all, it had a huge library with a fireplace and a fireplace in the main room that was almost as big as the room itself. The fireplace, remember, was made of imported Italian marble. They listed their home, and couldn't wait to make a fortune off of their remodeling.

But it didn't sell. It seems that no one wanted a one-bedroom home with a huge library. And the Italian marble fireplace looked sort of, well, discotheque. The house was on the market forever, or so it seemed. It was even listed by Realtors as a "one of a kind one-bedroom." Who in the world would buy a one-bedroom home in a three-bedroom neighborhood?

Okay, maybe you found someone, but would he be enamored with the Italian marble as well?

Guess what, they found a buyer. The buyer came to me for a loan. The buyer had a great job, great credit, and a good down payment. But I couldn't get a loan for him. There were no similar sales in the area. Forget the Italian marble stuff; there were no other one-bedroom homes in the market or anywhere close by. Lenders would not make a loan on that property.

Lenders can make exceptions with debt ratios and adjust for credit issues, but they typically can't get past property problems.

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