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My son is trying to buy his first place, and I'm trying to help him out (unfortunately, I'm not much help as it's been 20 years since I've been through this process and things have changed). He's trying to take advantage of the 8k tax credit before it expires. He has great credit and has been prequalified and preapproved already.
Basically he found a great value in a neighborhood he loves. The property is currently valued at 50% of the comps in the neighborhood (and the comps even have smaller homes and lots). Needless to say, on paper it's a terrific deal. At the price listed it's at 70% of what he's qualified for.
The property looks to have been in limbo for a while. It was offered months ago, and has been relisted REO now at 65% of that price. The property is listed as HomePath Renovation Mortgage Financing approved. We've checked it out, and it really doesn't look that bad.
The carpet is a mess - stained, dirty, smelly, but doesn't look to be torn or burned or shredded or anything.
It's missing a fridge, oven, and washer/dryer.
The garage has been converted to a family room, and has a bare concrete floor now. Looks like there was carpet but its been ripped out. It also might need a patch in one of the walls.
The walls are insane colors - blue, purple, black, and red ceilings.
Other than that, the place is just dirty. The roof looks great, structurally it appears fine (but I'm no inspector). Electrical, plumbing, and air seem fine.
My son thinks he can grab it for a great price, put maybe 10-15k in it, and have a great home in a neighborhood he loves that doubles as an insanely good investment, if everything checks out.
Here's the rub: his lender won't finance him FHA because of the repairs needed, and doesn't want to write a 203k. Also, my son needs to be able to close fairly quick, or he's probably just better off with another place he has in mind (but is at 95% of his approval price). In other words, he doesn't want to be caught in the lenghty 203k nightmare.
Also, he probably doesn't have enough money to cover all of the upfront costs involved. He has his 5% down and that's about it. He was planning on using his tax credit for updates/repairs as he goes.
Should he get an inspection first before deciding on loan types?
What do you think his best option would be? A conventional loan at 10% (I'd have to "gift" him some money to cover)? But will lenders do a conventional on property that needs some appliances, carpet in one room, and a paint job? Trying to find a 203k and dealing with the costs and hassles? Or should he try to do a HomePath, which look to only be offered by two companies nationwide? Or move on to another house?
My first thought is "find a new lender" -- it really is NO MORE WORK for the lender to do a reasonable 203K for a smart, motivated buyer. If your son can get the kinds of estimates that will enable him to get the money to do the repairs that are needed he would almost certainly be in GREAT shape with near instant equity (after the repairs...).
HomePath could be a GREAT solution for someone like your son, but you are correct there are relatively few loan origination people that are familiar with this option -- if you find one or two locally that will be all you need -- these programs often go through local credit unions and other "members only" type situations. If I were in your son's shoes I would switch to whatever credit union he could to get this -- it is almost certainly worth the extra leg work. Lack of PMI is HUGE!!!
I have to tell you that when I buying places for investment I loved loved loved dirty houses with ugly colors -- it was like hanging a Christmas tree with hundred dollar bills for me! That said BE VERY CAREFUL that it is JUST dirt and bad paint. While any idiot can get out the PineSol and the Behr paint, if there is really bad "money eating" problems (like plumbing, electrical, structure including roof / foundation leaks) you will kick yourself if the inspection is not done during the contract kick phase!
I agree with Chet. The 203k loan is great if you find a reasonable lender. However, do not use Bank of America / ex-Countrywide. They will not be able to close your loan within 60-75 days, regardless of what they tell you. Search the forums for more nightmare stories of such. Right now, you have just under 90 days to close before the Dec 1 deadline and getting a 203k lender to close the deal in time might be VERY difficult.
HomePath sounds great, but I know nothing about it. An inspection is a must to find those small things that will kill the deal before your son falls in love with the place.
Help! I am part way into a 203k loan, and the process is frankly, frightening. We read everything that we could find about the loan, and we're still running into quite a lot of surprises.
This has been stressful enough (and it seems expensive!) I would like to see if there is another option, and I was hoping I could get some advice.
I am trying to buy a house for $330k. I had it independently appraised at $400k. It requires about $100k in work. My fiance and I both have good jobs, both have good credit (high 700's), and neither of us have any debt. We have about $250k available in cash/liquid assets. The bank we are trying to buy the property from said we wouldn't be able to get anything but an FHA 203(k). Is this true? Is there anyplace that will finance a currently uninhabitable house with >30% down?
We are part way in to the FHA 203(k) loan, and the people we are working with don't seem to know what they are doing. We would like to just put ~$120k down and then pay for the renovations from our remaining cash. (Renovations would include repairing quite a lot of plaster and rewiring and replumbing -- we already have bids and a 3 month timeline estimate from a very good contractor.)
This is a very beautiful, and very historic home. We can't exactly look around for another one like it - truly one of a kind. It is a shame that it was allowed to fall into disrepair. We would really like to save it, but can we do it without the 203(k) red tape?
Help! I am part way into a 203k loan, and the process is frankly, frightening. We read everything that we could find about the loan, and we're still running into quite a lot of surprises.
This has been stressful enough (and it seems expensive!) I would like to see if there is another option, and I was hoping I could get some advice.
I am trying to buy a house for $330k. I had it independently appraised at $400k. It requires about $100k in work. My fiance and I both have good jobs, both have good credit (high 700's), and neither of us have any debt. We have about $250k available in cash/liquid assets. The bank we are trying to buy the property from said we wouldn't be able to get anything but an FHA 203(k). Is this true? Is there anyplace that will finance a currently uninhabitable house with >30% down?
We are part way in to the FHA 203(k) loan, and the people we are working with don't seem to know what they are doing. We would like to just put ~$120k down and then pay for the renovations from our remaining cash. (Renovations would include repairing quite a lot of plaster and rewiring and replumbing -- we already have bids and a 3 month timeline estimate from a very good contractor.)
This is a very beautiful, and very historic home. We can't exactly look around for another one like it - truly one of a kind. It is a shame that it was allowed to fall into disrepair. We would really like to save it, but can we do it without the 203(k) red tape?
Honest opinions, please. HELP!
First I do not understand "frightening" in the context of a loan. With a 203 you roll the renovation costs into the loan. It makes sense to do this the cost of repairs will bring the house up to a value that justifies the cost of repairs. You could put a lot of 'equity' back into the property with appropriate repairs.
I do not understand why the SELLER would claim that you can ONLY purchase the property with a 203K, I suspect they either meant there is no way in heck that you could get a standard FHA mortgage for this property, which is probably true, BUT if you have the CASH for a HUGE down payment of over 30%. Further if the property REALLY has been appraised at $400K the odds of some lender allowing you to borrow a $210K ought to be good.
Personally if you have an incompetent lender ANY loan might be enough to scare you into FINDING A BETTER LENDER.
If you would prefer to spend your own cash on repairs instead of using borrowed money then don't use a 203K, just get another lender. Of course it is MORE expensive to BORROW money for renovations than to use CASH YOU HAVE IN THE BANK, and because of this you ought to have a lot of flexibility.
If I squint really hard I can sorta see a way that this got screwed up with the details you have supplies, but it is not clear. Did you at any time tell the SELLER that you were interested in the SMALLEST down payment? Did the seller suggest the LENDER that is trying to put you into the 203K? It is possible (though not very likely) that somehow the SELLER has had other deals fall apart as the place NEEDS MUCH MORE than plaster, wires & electricity and is TRULY unihabitable and no lender is willing to take the risk that it is going to be required. With the 203K, basically FHA is taking all the risk -- that SHOULD be reassuring to you as a buyer and might be better off going that route...
Last edited by chet everett; 10-25-2009 at 08:52 PM..
I agree with everything Chet says. Dump the bank you're working with and get a better lender. Get financing with $120k down, and pay for the renovations out of pocket rather than through a 203k loan.
I gotta tell ya, I have a 203k loan that should have been a 203k Streamline loan (my reno is only worth $16k!), and the amount of extra paperwork is ridiculous. Something that substantial, don't bother with FHA and finance the reconstruction yourself. It's just not worth that kind of hassle if you don't need to. Just my 2c.
DONT DO A 203K. We're in the middle of one now, lender sucks, contractor sucks, 130K rehab and all he got done for 70K was the roof...and thats still leaking. half the house torn apart, no siding, no bathrooms, no kitchen...really good at tearing out but not putting back. Forced to use this jerk by the mortgage company "it would be easier because he's done these jobs before" bullsh*t. Don't do a 203K its not worth the stress and aggravation and is putting us in the poorhouse. We may lose BOTH of our houses because of this terrible loan process, crappy contractor and useless consultant/mortgage company. We now have to try to get 80K worth of work done for 40K.
Want to purchase a rehab home priced at 700k. Structural renovations done allready. Basic stuff needs done. House in neighborhood of homes selling from low $1.7m to high $3m Is there a lender that will do a conventional 203k
203k is an FHA loan, FHA loans are not conventional... so that is why you won't ever find a conventional 203k loan. For a loan amount of that size you'd be best working with a local bank who offers construction/rehab loan programs, but be prepared to put 20-30% down on the entire project cost (purchase + rehab cost).
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What do you mean "frightening"?
