I have a 4 BR 1 BA 1500 sq ft house on a 40x100 lot for sale I bought for $12,000. It needs rehabbing. I’ve gutted it to its shell and only needs some drywall and flooring. Comps run in the $50,000 range ready-to-move-in condition. Obviously mine is not.
I’m only trying to sell it for $35,000.
I have a buyer. He has “no credit”, is young, currently pays $400 rent, can’t prove 2 years consistent employment history, but has worked for 2 years with different companies, has no down payment, mother can be co-buyer, she has mid-600 fico’s, but she is a homeowner with 3 mortgages on her current house, so there is no equity there. A lender told me that they could do a loan if he has 20% down. I said that I could “gift” him 20 % down and the lender says it is okay.
My question is, is all this doable or am I pursuing the wrong buyer? I’d really like to see it happen for this young man, not to mention I just want to sell this property. Is it going to appraise if the house needs work still?
Most lenders are going to want the house finished and able to pass inspection. The good news is you will be able to get $50,000 for it when you finish. What problems are you having?
Nothing, I really don’t want to dump any more money into it. Margins are small. I’ve already spent $5000 on labor and other costs. I’d rather sell it to this guy who is going to be an owner-occupant and can fix it up the way he’d like it.
Plus, the $7,000 gift will give the Buyer that opportunity to do that.
The problem I’m having is basically qualifying this guy. I’m actually not sure if this lender could pull it off. Can you?
I think his monthly payments on $35,000 is going to be even less than the $400 rent he is paying, plus he’ll have $7,000 cash outside of the loan itself.
She told me that most lenders won’t touch anything lower than $50,000.
I have the opportunity to constantly flip lower priced homes so the above sentence is disconcerting, and I want to sell to this guy. I’d rather not let some savvy investor sweep me off my feet with all cash if I could help it. Everybody should be a homeowner.
Conventional lenders will not allow the seller to give the buyer a gift for the downpayment. You can, however, hold back a second mortgage, and the mom can get a no income loan to finance the property on her own. The real thing that worries me is that they don’t have the money to pay for closing costs, insurance and escrows, no less to finish construction, so even if you could close it without the flooring and drywall (which you can’t), how would they finish it? I think that you should determine the true assets of the buyer, and if it’s not there, find another buyer. You don’t even have to verify much assets if you go with an FHA 203K loan. This is a loan that allows for the purchase as-is plus construction costs to complete. Find a lender that specializes in this loan and refer your buyers to them for pre-quals while you’re doing your inspections and cost-estimates on the home. If you get your appraisal done and the cost estimates done (all through the FHA approved appraisers and cost-estimators), you’ll have some great tools for selling the home without having to finish construction yourself. Good luck, Sandra
I think I overstated the current state of the house.
The house was once a two bedroom, the add on to make it 4 bedrooms was erected by the previous owner but for some reason or another they left town before it was finished. This was a foreclosure. The other two bedrooms need some drywall, but besides that, the add-on is complete.
The flooring was stripped of rug and tile and so all it needs is new rug and tile. The actual structure of the house is solid.
Other than that, regarding the “gift”, this lender, she told me that the 20% down has to be “documented” but the fact that it is coming from me the seller as a “gift” is okay, hence, I’m not really selling it for $35,000, I’m selling it for $28,000.
I’m not really that interested in doing seller financing, since the house is out of the state I’m living in (CA). The buyer does have $1,000 and I calculated escrow, processing fees to be about $1,500. Part of it could be paid by the $7,000/20% gift.
From a conventional standpoint, you’re not being told the truth and will wind up finding out after you’ve wasted time and effort trying to make that deal work. They don’t have enough to close…not enough to finish the work on the house or buy carpet, not enough income, and seller gifts are not acceptable. I don’t think you have enough calculated for closing costs and escrows, but even if you did, how can some of the gift for the downpayment be for that too? Then the gift would be short. From a hard money standpoint…anything can be done. There may be enough future value in the property for them to make the loan and even help with the cost of the completion. When lenders are using their own money, they can make up whatever rules they want. Now this doesn’t mean that the buyer will want it if they have to pay tons of fees and a really high interest rate. I guess you’ll find out. Good Luck! Sandra
She told me that most lenders won't touch anything lower than $50,000.
I have the opportunity to constantly flip lower priced homes so the above sentence is disconcerting, and I want to sell to this guy.
It is becoming increasingly difficult to find lenders that will do low (under 50k) loans. Most conforming “A” paper lenders will do them. However, Most investment loans do not meet the parameters of these loans plus you will need to put money down.