I found a great deal on an REO property in Pittsburgh that I want to buy owner-occ. The house is 180K and needs 30K work (if contracted) tops. I want to offer 165K for the house. If I write the offer (have realtor write actually) at 195K w/ 30K back at closing for repairs, can I make that work?
Will the selling bank agree and will my lending bank agree? As far as credit is concerned, I will easily be approved for more than that amount conventional financing, and if it matters, I should leave the closing of my current home w/ 20K after costs, so I could do a down payment if needed (my bank already told me I could do 0 down, but that was prior to trying to get cash back).
Any help is appreciated. I’m hoping to make an offer tomorrow or Tuesday.
We have done this several times. As long as the value of the property is there we’ve never had a bank balk at it. But we’ve always been putting something down. The selling bank, I don’t think, will care - well, actually they won’t even be aware of it.
There are a couple of ways you can go…
-Just a straight loan w/cash back. The property is appraised as it sits and would need to appraise for the full value of the loan. Then whatever you do with the cash is up to you. I guess we did have to escrow the funds once. We then turned in receipts and had checks made out to the vendors.)
-A loan product (my broker has one calle ‘Renovation Plus’) where they appraise the property based on what the value of the property will be post-rehab. It works kind of like a construction loan and then rolls into a regular mortgage once all of the rehabbing is done.
I’d go the first route if the value is there. Your broker/loan officer should be able to tell you right off if it can be done with 0% down.
Karla in Amarillo
Karla (or others),
Thanks for the reply. I don’t know if you caught the initial part that this is an REO property, so the selling bank would know they were giving money back at close. My lending bank has a program where I can borrow fix-up money, but I would rather buy at the higher price and get the cash back at close. That way, the property is actually contracted and sold at the higher price - and recorded in the auditors office at that price. When I go to sell, the buyers realtor will look up the last sale price and see that I paid 195 instead of 165 ;). With that detail in place, do you see a problem, or do you think I am still okay including that into my offer?
I did miss that, but if $165K is what they’re looking to get out of it I don’t know why they’d care. I’ve never done one. I guess you can just make the offer and put that in small print!
I do have some news, however, about what will be recorded in the auditor’s office…
It will show the base price - before the cash back. We have had that happen on two properties anyway. I guess the other’s that we’ve gotten cash back on we haven’t tried to look up, or a buyer hasn’t checked it. In fact one property that we’re in the process of selling right now is recorded that way and it’s almost cost us the sale. (I don’t know why the buyer cares what we paid - they’re still getting a fair price.) I actually sent the copies of all of our paperwork and receipts for the work we had done immediately upon purchase to “prove” how much we had into it. So you might want to really check that so you’re not surprised like we were!
Karla in Amarillo
Thanks, that’s good to know, though not what I was hoping to hear. I wonder if there is anyway to change how it will show in advance. Another thing to consider, I guess, depending on how long I plan on sitting on the house, is what will the higher sales price do to me on taxes.
Appreciate the help.