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Im in midst of looking for 1st home.. Have a mortg consultant already did preapproval and all that...ready to go
found a house, it needs updating, but its decent, empty, clean good bones....Im debating whether to go 203K route, to have mortg and loan payment in one.....OR just go regular FHA, like planned, and then update things as i can afford it...
60 yr old house all original, but its clean and things work....and things will pend on home inspection too of course....
But im just not sure which way to go....If i go regular FHA, the mortg will be good and low ....I have a budget, and if i go 203K then itll only be able to go to the budget limit...so maybe ill have 25-30K to update and fix things thats needed....dont know if thats enough.....plus my mortg each month will be higher ....i left a message with a man my realtor recommended , he does 203K loans and knows in and outs...hopefully he calls soon so i can discuss all this whether to do it or not.....
Ive read on HUD site about how 203K works and all that, ive read posts from people that didnt have a good exp with it.....just not sure what to do, and i dont want to hem and haul, cause my luck ill lose the house.........it is livable...just all original, small kitchen from 60s, all orig. windows and bathroom....hard wood floors in good cond, just need to be buffed and polished and of course all painted ... and as i said whatever comes up from inspection.....
if i go regular FHA, i could take a loan out from my credit union MAYBE, but how long before you can get a home improvement loan or equity loan to do improvements on a home you just bought??
You need equity to take out an equity loan, and if you are putting down just 3.5% you won't have any of it for quite awhile, even if you are buying considerably under market value lenders don't use a value higher than the purchase price until you've owned the home for a year. You could refinance into a 203k loan after you purchase, but then you pay an entire new set of closing costs, so if you are going to do a 203k loan you should do it as the purchase loan.
Will you be unhappy living in the home in it's current condition for a few years awhile slowly repairs are being done? I feel you'll probably appreciate the home more that way if you do the improvements yourself, but you will have to wait a little while to save up for projects. For an extra $30k in loan amount it will increase your payment about $160/mo for 360 months - which is $57,600 total in payments, roughly $27,600 in interest. So instead of financing, and by saving for the improvements yourself you essentially cut the cost by half.
No argument with Shane's numbers, but when the 203K is an option (vs a requirement, like where the house NEEDS work before it is livable...) the decision points that matter are really one's personal finances AND the TIMELINE for your "house-life plan".
If you think that you can save up / use credit cards / get a traditional home remodling loan (which is not tax deductible but that may not be a big deal...) that sorta answers the finance questions. If you can't do those things then the 203K is a better option.
If you plan is to live in this thing as is for as long as it takes then the 203K has no benefit BUT if you feel that you could significantly upgrade and NEVER need to leave OR the upgrades would push the home into a new category so you could use it to "climb the property ladder" then the 203K MIGHT be a wise decision...
I don't know the specifics of demand around the greater Philadelphia area but I would guess "flipping" is not as profitable as it once was -- some flipper did not mind using a 203K to lever renovation costs, as their goal was to sell long before the costs of the loan mattered. Such math is no longer wise. It MIGHT,however,still make A LOT sense to budget for a long term set of improvements that would give you / your family that kind of home that will make you comfortable for a LONG time, regardless of how those interest costs stack up...
SHANE are you on another mortg forum too?? I saw the same exact response to this post i put on another forum....I just answered that.....
CHET, yes we can save up and do little things in time...we arent planning on flipping this and arent moving out in 5yrs either..NOT staying our whole lives either....yes updating the house to present day would most def. help it when time comes we do move out.. how long does a new home owner have to wait to get a traditional home remodeling loan?? we can do a lot of the things ourselves, but if we wanted to make the kitchen bigger and gut both kitchen and bath, then your talking lots of money....and i dont even think the 203K would be enough money to do that, maybe 1 or the other.....just dont want to keep being undecided cause my luck the house will wind up selling....been on market for almost 6 months now....we actually live in south eastern part of PA in delaware county.. taxes right now on the present cond. are 3700, i realize once home gets updated itll go up..
trouble with 203K loan is its fixed into the mortg for the life of the loan...AND the rate is a bit higher then reg FHA rates, right?..like i said in other post, house is listed at 120 taxes are 3700 we would do FHA and ask for S/A 6%....maybe we would offer 100-105 for the house... so if we get it reg FHA the payments would be decent, but if we get this other loan then you are talking adding on another 200 give or take.....plus like i said, if we get the house say for 105, our budget can only go to 130 no more....so thats only 25K if that to do a kitchen and or bath and new windows thruout...and who knows what all else home inspec will find, or if seller will fix any of those findings........hard decision to make for sure...........
Yes, I am. Since you can save up and do repairs little by little, and you are OK living in the current condition of the home, and taking on more of a payment would be "pushing" your finances... then I think it's a no brainer to buy the home with a regular FHA loan, and save up for the repairs on your own.
The demand for "regular" home remodeling loans is still far below that of HELOCs. The way banks / credit unions evaluate these loans is based more like how credit card companies evaluate new applications for card holders or auto finance companies make judegements about car loans. That means that if you have a healthy credit score, good income, modest debts they will approve the loan. The size of the approval is going to based off the same kind of debt ratio a mortgage lender would use BUT this will NOT be a mortgage and the interest will not be deductible -- in fact it is very likely the interest will be VERY similar to what you would pay on a credit card which is typically MUCH higher than a mortgage or HELOC... Some "less than scrupulous" finance companies have used hanky terms and rapidly escalting rates to promise borrowers more money than any sane person should bake into their debt load, but it goes without saying that agreeing to such a loan would be ruinous to ones financial health.
In the best case scenario you could probably find a lender that would approve you loan within a few months of your purchase HOWEVER that assumes that your credit score does not decline after the home purchase, which is NOT at all a certainty... Most homeowners do have "move in expenses" that end up on credit cards and that will likely diminish your borrowing power.
To be safe I would NOT look at a traditional home remodeling loan as being AUTOMATICALLY larger than what you could be approved for either a traditional FHA loan OR much larger than a 203k -- basically if you are shopping for places expecting a BIG discount AND big costs to upgrade the kitchen I would caution that sort of thinking CAN and has resulted in buyers running head on into big disappointments. In other words, if the TOTAL of the upgrades and the purchase cannot exceed $130K it is best to dial down your shopping...
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