I am buying a new primary residence. I am preapproved and plan on doing an 80/20 loan so I can use my equity upon sale of my current home for investments. The new home I’m buying is 226K. I should walk away from my selling closing w/ about 30-35K (which, again, I am trying to avoid using if possible). Upon purchasing the new residence, I would like to spend 5K on a fence and 15K on a bathroom. I would like to finance this in. My lender has advised against the 203K (which is what I was initially thinking - says it’s difficult to work w/ due to inspections, etc., plus the 203K would involve PMI I believe).
My question is this: How can I (if at all) structure the sales contract to change the selling price of the home to 246K and get 20K back at close for improvements? I want to be up front with the bank as much as possible (my banker is pretty understanding and flexible - I can have “off the record” discussions if need be - but I don’t want to be out and out decietful. The home we’re buying is FSBO, so neither party is using a Realtor.
Does anyone have experience with this that could give me any advice? I have to work out the written contract Monday (currently verbal agreement).
Thanks a lot.
If you want the equity in your house for addons to the new house you are planning on buying…you should get an equity line for the 30k in equity that you have in your house BEFORE you close on the new one. You do this because you need it to be your owner occupied house to take an equity line up to 100%. This would also depend on your credit. THen you have your 30k all ready and set up in a HELOC before you close on your new house.
Buckeyes, I hope this might give you an idea of how NOT to finance it in with the new home and you wont have to wait to sell your new house to get the money.
Shaun Gale
If you are going through a mortgage company to get a loan they will want an appraisal. They wont lend more than the appraised value on an 80/20 because if you default, they wont get their money back.
If the property is a great deal, you might be able to get the higher appraised value but the seller would have to give you back the cash. He probably wont do that because he will have to pay taxes on it.
If it really is a great deal, you can buy it with the 80/20 wait a while and refinance it at the higher amount. Some lenders require a year of seasoning, some dont require any seasoning at all. But it will depend on the appraisal.
What about getting a home improvement loan after the purchase? A few credit unions in my area had excellent rates, so I bought a home and rehabbed it using a HELOC and home improvement since we couldn’t roll in the costs at the closing table.
A few of our local credit unions offer home improvement loans based on your credit for up to 15k with no lien against the house. You can go up to 50k many of them, but the higher amount would require a lien.
You could use Lowes or Home Depot for the fence and bathroom and let them finance you for 12 months no intrest or payments. After six months get an equity line on the new house and pay off the cresit card.
just restructure the deal.
Start over with a new purchase contract or do an addendum with the added bathroom and additions and then get the appraisal for what you need and you should be able to get it with the new improvements.
This should not be a problem and should be fairly easy for your broker to fix.
You do not have to do all of this added work that the other poster have stated just do it right the first time
You should not have PMI at ALL if you are doing a 80/20 deal that is the one of the purposes of doing that type of loan
Are you sure you are dealling with a broker that understands what you are trying to do because this is easy.
Here’s the deal with the 203(k) loan - it is an owner occ loan. There are a lot of hassles with inspections and this is a very fee-laden loan to get. All FHA loans require mortgage insurance for 5 years at least even if your LTV is under 80%. That is how FHA keeps going. But weigh those costs against having 2 sets of closing costs from refinancing after your fixup. Most mortgage brokers don’t like 203(k) loans only because they don’t know anything about them. Also the high costs mean the broker must add fees to already high lender costs, increasing the likelihood of sticker shock on the closing costs. You won’t be nothing out of pocket on one of these. It could cost you a few thousand.
There is a small handful of lenders out there that will refinance with very little property seasoning on a new appraisal. The drawback is the property generally must be in perfect condition for that. (i.e. You still remain with the problem of how to finance the work in the first place.) I’d say don’t go with these if you can wait 6 months to refi, there are a bunch more lenders who will do it in 6 months.
The easiest thing to do is get the HELOC on your current home but don’t get up to 100% if you have a realtor selling it. (You’d need some equity to pay the realtor.) Take a big fat draw on it and then keep the cash to fix the second house. Pay it off by selling the first house.
The other way, the Lowe’s card way, is OK too but be careful that it doesn’t knock your debt to income ratio so high you disqualify yourself for the new loan. Best to do that after you close!
You could also geta portfolio lender (holds its own paper) that has rehab and purchase combo loans. Some of these are balloons and so will require a refi after a certain number of months. Try to get one that doesn’t have a balloon, that rolls into permanent financiing.
My last suggestion is to raise the price of the house, and add a seller allowance for redecoration. Generally you can’t exceed 6% of the purchase price with the allowance. The rehab money might have to stay in escrow until your lender inspects the completed repairs. It just depends on the lender.
One last thing you could do is have your seller be the one to take out the HELOC and then buy their house subject to the existing mortgages in a land trust, then cash them out a year later. Or do an unrecorded land contract. I think the trust is best for the buyer. Get the deed. Then they can’t get a fed tax lien and screw your title up.
Emily