Post # 1
Darling Husband and I will *hopefully* be in a position to buy our first home at some point in the next year or so. There’s a house that I really love that’s been on the market for a while and I’m kind of hoping that it will still be around when the time comes for us to buy (wishful thinking, I know). It’s crazy cheap but would require us to put some money into it to bring it up to our standards (update the kitchen and baths, do some work outside, hopefully put in a pool if we could swing it, stuff like that). How do the finances for the upgrades/repairs work? Is it possible to work those into the mortgage amount or would it be an entirely separate loan? I’m clueless.
Post # 3
I don’t know so I wanted to bump it to see the answer
Post # 4
@UpstateCait: Who is the home for sale by? A person or a bank? If its a person, I might would “try” to ask for some upgrades to be included in your purchase price (its a long shot but it could pay off) then if that doesnt work, I would talk to your bank about the amount of money you will need for your loan to buy the house, then find out what your mortgage payment would be off of that, then I would include the money needed to upgrade and find out what your mortgage would be on that. Decide what is affordable for you between the two. If including the upgrades in your initial loan amount puts you over your comfort level of monthly payment for your mortgage, I would only take out the amount needed to purchase the house… Then maybe get a Lowes or Home Depot card with intrest free insentives and use that for upgrades. Just an idea 🙂
Post # 5
We looked in to this briefly when we were house hunting before we decided we just wanted to stick with something newer.
We found something called a FHA 203K Rehab loan that seems, under certain circumstances, to allow you to roll home repairs into the mortgage.
Here is some more information on it: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/203kabou
Otherwise, it seems like it would be a totally separate loan from what we could find.
Post # 6
Well my husband bought the house before he met me, but it’s my understanding that upgrades are all on you, so you’d take out a separate loan for those. Most lenders are wary of lending money at the moment so they probably wouldn’t give you more money the house is worth when you buy it because there’s no guarantee the work you put in will be equal to what they give you. Now if something is in need of actual repair, you may be able to negotiate those costs with the seller.
Post # 7
From my understanding, you would need to take out a second mortgage for repairs. We purchased a house that needed a significant amount of updating so we only put 10% down and used the remaining 10% that we were going to put towards a down payment towards repairs and renovations.
There are programs out there such as Homepath. You bank might have some more information. “One loan amount includes both the funds for the purchase and renovation — up to 35% of the as completed value, no more than $35,000. Available for owner occupants and investors.” http://www.homepath.com/financing.html
Post # 8
It is going to depend on the selling cost and the appraised value of the home. It’s very unlikely that any lender is going to give you a loan that’s for more than the house is “worth” in its current state, but its “worth” is not always in line with the selling price. So if the asking price is $100,000 and in its current condition it appraises at $110,000 then theoretically you could get a loan for $110,000 and put the extra $10k into repairs; however, the bank is going to send their own appraiser to make sure the property is worth at least the loan amount, so it’s not like you and the seller can just adjust the price and get the money that way.
I would speak with a realtor about seeing if the seller would negotiate some of the repairs back into the cost of the home, in other words you will pay their asking price of $100,000 if they fix the roof first. The seller can always say no to these things— it’s all negotiation— but it’s worth asking.
Also check in your area for any city/state government programs for distressed property buyers, especially if the home is facing foreclosure, as sometimes (not always) you can get grants or secondary loans towards repairs if it means the house would otherwise go vacant and drag down overall property values.
In general, though, it’s extremely uncommon that you would see a lender give you a loan that is #1 more than the seller is asking for and #2 more than the property is worth.
Post # 9
@Mrs.DsBeeloved: I don’t think it’s bank owned. I know that there’s still a family living there but it’s been on the market for 6+ months. The thing is, the “upgrades” that I’d want to do pretty much consist of gutting the entire kitchen and knocking down some walls among some other cosmetic repairs. The purchase price is about $100-150k less than the mortgage amount that we’re comfortable with so we’d have a ton of wiggle room and that’s if the asking price remains what it’s at currently. If the house continues to sit, I think we’d be able to get it for much less.
Good call on the Lowes/ HD card. That would be an option too. Thanks for the feedback. 🙂
Post # 10
@Mrs.KMM: & @roxy821: Awesome info. Thanks!
@fishbone: I know that the sellers have been reducing the asking price by thousands every month or so. When I first found the house it was in the high $170’s. Now it’s in the low $160’s and still dropping. My aunt is our real estate agent so with her negotiating skills and the fact that it’s been on the market for so long, I wouldn’t be surprised if we could get it for $150’s. If we could work it out to get a loan for the appriasal amount and it comes back around the original asking price, that would be a pretty good start on our repairs.
Post # 11
If it’s been on the market that long, there is a high liklihood that it has more serious issues than you know about. Has it been under contract before, and the buyer pulled out after an inspection? A real estate agent should know that. I’d maybe contact one (or ask the one you already have) about it before you continue fantasizing :-). My SIL was super attached to a house, and then before they put a bid on it, found out that it had been under contract and the buyer walked away over major structural issues that weren’t immediately apparent from a walkthrough.
Post # 12
@Mrs.KMM: We did a 203k loan and it worked out really well. Purchase price was what the bank was asking, and about $80k lower than comps. We used about $35k in improvements (floors, kitchen, bathroom, deck, insulation, drywall, carpet) through the 203k loan.
The only downside is that interest was about a point higher, but a year later we refinanced to like 3.75%.
Post # 13
@crayfish: That’s DH’s concern too and there very well could be a serious issue. I think I’ll have my aunt do a little digging and see what she comes up with. You’re right, it wouldn’t be worth dreaming about if the house is crap.