Question: My wife and I have been looking for the right house to buy for the last year or so. Property values have skyrocketed so we have been searching for well-priced "handyman specials", figuring we could buy at a good price and make improvements ourselves, over time. We found the perfect house in a great neighborhood for $230,000. Similar houses in the area are going for nearly $300,000. The only difference is that this house needs major cosmetic improvements. There are holes in the plaster, the kitchen is outdated, and the siding is falling apart. Need I say more?

At any rate, we figured we could improve the house over time at very little cost with our own "sweat equity". We applied for a mortgage of $184,000 with a 20 percent down payment. The appraisal came in at $250,000 -- $20,000 over our purchase price. But the lender is saying that the appraiser noted a list of items recommended for repair. Now they say that they won't make the loan unless we patch the holes in the walls and repair the clapboard siding.

This seems ridiculous considering we're putting 20 percent down and the property appraised $20,000 more than the purchase price. We really want the house but can't afford to make these repairs in the next 30 days. Any advice?

Answer: First of all, congratulation s on finding an undervalued "fixer-upper". One of the best ways to build wealth is to do what you're doing - buying an undervalued home in need of some work and adding a little TLC. Your living conditions may not be the best, but at the end of the journey, you will very likely have a nice asset on your hands.

Now, let's get to your question. You're in a bit of a Catch-22 situation. The lender won't lend you the money unless certain repairs are made. You plan on making these repairs but can't make them until you obtain your mortgage and settle on the house.

The lender has one issue - "marketability". The job of the appraiser is to not only valuate the property but also inform the lender of the marketability of the property. The lender is looking at a worst-case scenario. You default on the mortgage and the bank ends up with the property through foreclosure. The appraiser notes on his report that the property is not in "marketable condition", meaning that the home will not easily be sold until certain repairs are made.

Hello? Isn't that why you're buying the house? The price is great for a reason - the house is in lousy condition so nobody (except you) wants to buy it. But if the bank ends up with the house through foreclosure, it can't easily sell the house without repairs being made.

Herein lies the problem. The bank is in the money-lending business, not the home improvement business. The lender is scared to death that it will end up with a piece of junk property that they can't get rid of without spending a bunch of time and money on it. They don't want to be in that business.

I acted as a mortgage broker in a very similar situation. Let me tell you what I did.

" First, I phoned my appraiser and told him I needed the property to be appraised "as is". This means the value is not subject to any repairs or improvements.

" Second, I asked him what specific items he would be obligated to list as "adversely affecting marketability" of the property. It turned out that the appraiser was concerned with holes in the dining room ceiling and broken gutters.

" Third, I instructed the buyer to plaster the holes and re-attach the gutters with the minimal cost and effort. It turns out made the repairs at a cost of less than $100.

" The appraiser then re-inspected the property and was able to complete the report in "as is" condition and with no adverse notations.

Basically, the buyer had to spend $100 and a little bit of time to ensure that the appraisal report is not a red flag to the lender. Remember that all appraisers are different. If your appraiser is unwilling to work with you on these issues, you should find a different appraiser. In my experience, most appraisers will be flexible in what they will note in the report.

Published: February 21, 2003

Use of this article without permission is a violation of federal copyright laws.

, the president of PMC Mortgage Corporation in Alexandria, VA, is a mortgage columnist whose work has appeared in numerous consumer, real estate, and mortgage publications. Mr. Savage welcomes your questions for possible use in this column, however because of the volume of mail received, Mr. Savage cannot answer questions individually.