Which should come first the chicken or the egg

General Real Estate Investing
1

I am having problems determining what should happen first in making an offer. I have read many times on here to get the contract signed to lock up the property and then worry about the inspections and funding and such.

Well I put a property under contract;
Listed = $124,000
Offered = $90,000
ARV = median = $179,000, Average = $203,000 (From CMA report)
Rehab = $30 to $35K

My credit score is 670, wife is 691 and because we are working a property right now my DTI is quite high 85%. When I called the bank to get a loan I found out that I am going to hahve to put 10% down.

Since I already made the offer how can I get the $9K into the loan?

So, which comes first the funding or the offer?

Rick

2

When you made your offer there should have been a loan contingency in the purchase agreement - i.e. if you can’t get the loan you can be released from the contract.

I have known of some mortgage brokers who will adjust their loan origination fees up to cover the amount you need and pay you “under the table”. This appears to be illegal in that the money is really not yours. This will not work if the lender wants your reserve funds to be seasoned (has been in a bank or in another form) for a number of months. Also, this really won’t help the immediate problem since the mortgage broker doesn’t recieve his money until the transaction is closed.

You might want to talk to a mortgage broker - they tend to be more creative than banks.

It is always a good idea to find out the amount you can borrow before even looking for a property.

3

So is the loan for $90,000 or $125,000?

Are you paying for the rehab from cash on hand?

If so, use $9,000 from the rehab money for the down payment and find other ways to pay the balance of the rehab (credit cards, whatever).

4

Paul.

That looks like what I will be doing but I was hoping not to have anything but the rehab cost coming from my pocket.

5

If you are trying to minimize your cash outlay, you should go to a mortgage broker that specializes in investor loans. There are lots of banks that will do these deals as construction loans, meaning they will loan you not only the purchase price but also all (or a good portion) of the renovation money, too.

I use Regions Bank whenever possible. They will loan me 75% to 80% of the ARV (the true retail ARV, not some bogus, inflated number), and if that happens to cover 100% of the total cost, so be it.

The last loan I got from them was for a house that appraised (subject to repairs) for $145K. My credit line was 80% of that, or $116K. I paid $98K for the house and put $18K into it, meaning that I paid out of pocket only for the closing costs and monthly interest payments (at about 9%).

The house is now under contract (settling on Monday, actually) for $154K less $3K in closing help.

I would contact your local REIA and see if you can get a copy of their latest newsletter to find ads for mortgage brokers who specialize in this kind of loan.

And once you do your first loan with the lender, you won’t need to pay the mortgage broker’s fee because you can go direct…