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Author Topic: Financing Question  (Read 7533 times)

Offline up2itnow

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Financing Question
« on: October 16, 2006, 05:25:18 pm »
I have a question I am hoping you can help me with. My wife and I fell in love with a house that needs a bunch of work. It is not an investor or hard money deal, as I may only have around 10% equity. I am trying to figure out a way to purchase the house and get money to complete the repairs with out paying too much for the house. According to my mortgage broker, conventional money will only allow for 6% seller cash back. This is not enough to do what it needs. So I had a thought, What if I had my friend negotiate a contract to get the best price. Then he assigns the contract to me at a higher price. (310,000 negotiated, 360,000 I finance) I finance it conventionally, he gives me the cash and I repair the house.My mortgage broker already had her appraiser look at the house (as is) and they would loan 389,000 on it. But, if my friend negotiated it, I could get it between 290,00 - 310,000 and then I could assume it for 360,000, then he gives me the cash. So, will this scenario work?

Here are the numbers:

purchase - 280,000 - 310,000

House 5bd, 3ba, 4038 sqft, built in 1977 and nothing has been touched since Gold, avocado...yuck!

Arv - 374,000 - 394,000 from comps - Zillo's estimated value with sqft and # of bd, ba corrected plus changed for planned improvments - 440,000

Cost of repairs 50,000 - 70,000 for updating mostly, Plus fix some small credit issues  

It would be our primary residence

FICO - 580 - 600, BK 4yrs ago

100 - 110k combined income

Little to no money down.

Hoping to use an interrest only loan for 2yrs and then refi to a traditional loan so the payments are not 2500 - 3000

I appreciate the input.
Thanks BW
« Last Edit: October 16, 2006, 07:03:12 pm by [email protected] »

Offline zachj

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Re:Financing Question
« Reply #1 on: October 16, 2006, 06:23:29 pm »
If it needs a bunch of work conventional lenders will not finance the deal, they will require the work be done prior to funding.  You will need to go with a hard money rehab loan on this one given the low fico.
Zachary Johnson
Commercial & Residential Loan Specialist
100% financing, Rehab Loans, Hard Money, Construction & Development Loans Internationally
Windsor Capital Mortgage Corp.
office: 619-822-2909 (SEE PROFILE FOR EMAIL ADDRESS), www.propertyloanrates.com

Offline REI4ROI

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Re:Financing Question
« Reply #2 on: October 17, 2006, 01:57:48 am »
The hypothetical between you and your friend is not advisable; you would be committing loan fraud and if your mortgage broker knew about it, he/she would be in bed with you.  

Now onto what you could do...

As you intend to occupy this as your primary residence, you have a mid FICO is between 580-600, BK > 4 years ago and about 70K in repair costs, I suggest that you investigate the use of a FHA 203(k) loan (my only concern is that the property might exceed the FHA max. lending limits in your area).  

If your broker is does not have a FHA license (most don't), feel free to contact me.  

Regards,
RE Investment Advisor
Weichert Realtors
[email protected]

Offline up2itnow

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Re:Financing Question
« Reply #3 on: October 17, 2006, 10:24:39 am »
Thanks for the help. After thinking about it you are right. Fraud is definetly not the route I want to take.

I apprectite the input.

BW

Offline zachj

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Re:Financing Question
« Reply #4 on: October 17, 2006, 10:52:56 am »
If you go with that fha 203k loan it will be quite the wait.
Zachary Johnson
Commercial & Residential Loan Specialist
100% financing, Rehab Loans, Hard Money, Construction & Development Loans Internationally
Windsor Capital Mortgage Corp.
office: 619-822-2909 (SEE PROFILE FOR EMAIL ADDRESS), www.propertyloanrates.com

Offline up2itnow

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Re:Financing Question
« Reply #5 on: October 17, 2006, 10:58:34 am »
I think I will try to talk the wife out of the house. It's that or live in a very retro house for a year, when  I can pull a heloc and fix some stuff. UGH

Offline zachj

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Re:Financing Question
« Reply #6 on: October 17, 2006, 11:05:27 am »
Work on pullin the credit up a bit and you'll be eligible for a conventional rehab loan program that covers purchase+rehab.  You don't have far to go, 620+ will do it.
Zachary Johnson
Commercial & Residential Loan Specialist
100% financing, Rehab Loans, Hard Money, Construction & Development Loans Internationally
Windsor Capital Mortgage Corp.
office: 619-822-2909 (SEE PROFILE FOR EMAIL ADDRESS), www.propertyloanrates.com

Offline real estate 001

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Re:Financing Question
« Reply #7 on: October 17, 2006, 11:06:01 am »
 what state are you in i may be able to get you some help

Offline up2itnow

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Re:Financing Question
« Reply #8 on: October 17, 2006, 11:14:49 am »
We have been working on cleaning up the credit reports. I hope we will be up to 620 in the next few months.

I am in Colorado.

Thanks,
Bill
« Last Edit: October 17, 2006, 12:54:22 pm by kdhastedt »

Offline REI4ROI

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Re:Financing Question
« Reply #9 on: October 17, 2006, 12:50:02 pm »
Huh?  What experience do you have with FHA?

If you go with that fha 203k loan it will be quite the wait.
RE Investment Advisor
Weichert Realtors
[email protected]

Offline zachj

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Re:Financing Question
« Reply #10 on: October 17, 2006, 01:01:03 pm »
enough to know there a nightmare
Zachary Johnson
Commercial & Residential Loan Specialist
100% financing, Rehab Loans, Hard Money, Construction & Development Loans Internationally
Windsor Capital Mortgage Corp.
office: 619-822-2909 (SEE PROFILE FOR EMAIL ADDRESS), www.propertyloanrates.com

Offline christopher w

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Re:Financing Question
« Reply #11 on: October 17, 2006, 04:51:20 pm »
I agree with Zach. 203K loans do not get done quickly.
Christopher W
C-214.923.5781

Offline REI4ROI

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Re:Financing Question
« Reply #12 on: October 17, 2006, 09:58:28 pm »
Now that we have a consensus, have either one of you ever orginated an FHA loan before?
RE Investment Advisor
Weichert Realtors
[email protected]

Offline Lendinghand

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Re:Financing Question
« Reply #13 on: October 18, 2006, 12:42:12 am »
up2itnow,

What do you mean by a bunch of work?  Will the appraisal stand on its own?  A bunch of work doesn't mean that you automatically need a REHAB loan.  Upgrading a house is not the same as a needed REHAB/CONSTRUCTION loan.

Why not purchase the home at agreed purchase price - $280,000 - $310,000 and then do a no seasoning refi to the appraised value of $389,000 to take out the needed cash for repairs?

If the property is acceptable to an underwriter then you should be able to obtain 100% financing at your scores.  I would check your current mortgage broker to see if he knows of a lender that will accept the appraisal before going into a REHAB loan.

If it does need necessary work, then you'll have to define that work in a cost breakdown though a licensed general contractor in your area.  This would be a start for you to define exactly how much money you will need.  

203k or Conventional Construction would be your next step.

EZLoanz is right about the FHA licensing.  If you're not licensed to do FHA then you're more than likely going to dismiss it rather quickly.  However, it doesn't necessarily mean that the 203k is anymore of a nightmare than a regular construction loan.  The difference is minimal.  Paperwork is paperwork and there will be enough of it on any construction loan.

Those of us that know how to close a construction loan are few as experience comes with age and construction loans take time to complete.  

If you hear someone complaining about the paperwork within a construction loan, you'd better off stay away from that person.  

Quote
Cost of repairs 50,000 - 70,000 for updating mostly, Plus fix some small credit issues  

Do you have a cost breakdown?  This is the question that was missed here.  And how much do you need to do your credit repair?  Credit repair companies cost less than $800.00

Another question that comes to mind is what type of property is this?

At the very least, let's just assume as we are here that your project needs a considerable amount of work.  With your scores, we could entertain a construction loan with a Loan to value of 65% and/or a loan to construction (ARV) of 75% whichever is less.  

You don't need your 10% down if the equity is in the project as you have stated.  Equity = down payment.  Your interest rate should be between 6.875 and 7.50% for a six month construction term.

I would advise staying away from trying to flip the property back and forth between you and your friend as this can lead to loan fraud.

Your Bk 4 years old is not an issue.

Hope this helps.

« Last Edit: October 18, 2006, 12:45:14 am by Lendinghand »
Jason Vogler
Realtor - Ex Loan Guru
314-566-0919 direct

Offline christopher w

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Re:Financing Question
« Reply #14 on: October 19, 2006, 03:37:30 pm »
EZ,

I have originated plenty of FHA mortgages over the last couple of years. I am working on two right now as a matter of fact. Now that we have that answered...What does it have to do with the price of tea in china?
Christopher W
C-214.923.5781

 




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