mortage advice for clueless first time buyer
Hello, My boyfriend and I are looking at a 3 family house in bushwick in need of a total gut renovation. We are really not sure if we can afford it depending on the renovation cost-we had an unofficial estimate that was really scary. Can anyone reccomend a loan officer or bank that gave them…
Hello,
My boyfriend and I are looking at a 3 family house in bushwick in need of a total gut renovation. We are really not sure if we can afford it depending on the renovation cost-we had an unofficial estimate that was really scary. Can anyone reccomend a loan officer or bank that gave them a mortgage and construction loan together? Are banks doing this right now for first time buyers? Also we have a potential opportunity to buy a property in Pennsylvania that we could very comfortably afford but would be a weekend house. Does it make sense to do this and build equity…would that make it easier to get a loan for the kind of property in NYC that we would eventually reallly like to own and live in? We really need some advice! I would appreciate any! Thank you!
this is all really so helpful, thank you so much. I have been researching these FHA loans, specifically the 203k. williamsbugguy-are you pointing out that with this type of loan (or any FHA loan) you can expect to have to pay 9% out of pocket as opposed to the traditional 20%? There is a big difference between 3% and 9%-thanks for pointing that out. But it is still significantly less than 20% plus closing costs. What are the other potential drawbacks? Besides the lengthy process and oversight which has already been mentioned in this thread. One thing I have heard people talk about in reference to paying less than 20% down is that then you are carrying mortgage insurace and paying mortgage insurance premiums. Is this always the case with FHA loans?
thanks!
FHA loans can also be misleading – 3% down, but you end up with about another 6% in closing costs that you used to be (a lot of times anyway) able to get an appraiser to “work into the appraisal price,” but now appraisals are being very VERY closely monitored by the government banking regulators so we are seeing nearly all FHA loans having to actually pay that roughly 6% out of their pockets, plus the 3% down. I guess that’s still cheaper than 20% down plus a cheaper closing, but still not exactly the 3% they lead you to believe. One potential benefit in FHA over a conventional loan though is that those closing costs can be in the form of a “gift” from friends or family whereas conventional loans look at your own income and reserves to see if you have enough to close and no gifts are generally allowed.
You would need to pay for those repairs out of pocket.
I would speak with a 203k lender, Prob Wells Fargo. I really don’t do them often and they take a long time to process (doesn’t make financial sense for me.)
Wells Fargo has a lot of experience in these types of loans. Make sure that the loan officer that you speak with has done them before. Hope that helps.
-AD
Thanks. All of this is really helpful feedback.
6:11-our contractor told us the same, that $150 psft was pretty standard and depending on finishes we could expect $150-$300 psft. It is good to have some confirmation that this is conventional wisdom because it seemed surprising to me. (or just not what I wanted to hear considering the place is about 3000sqft).
A 203k had been suggested to me. What happens if you want/need to do repairs that are not allowed under the terms of that loan? Does anyone have experience with this process?
Thanks again for all the advice!
It’s a 203k loan. A 203k loan is an FHA product that allows you to purchase a property and the money to repair it along with up to 6 mths mortgages payments financed into the loan. Not to be mistaken with a 203k STREAMLINE which only gives you 30k to fix the property.
I would not entertain a 2nd home/vacation property until you have a history of owning your own primary residence.
Renovation projects are not for the faint of heart, make sure that you go into this with open eyes and a real idea of the costs to repir such a property. 75k does not sound like enough to gut a 2 fam building IMO.
Also, if you go the 203k route there are certain repairs that you are allowed to make and some that your are not allowed to do with the money. You must use a FHA approved contractor that works with the FHA consultant so their figures may be different than any contractor you may have already spoken with.
If you have any other questions don’t hesitate to ask.
AD
…Ya…$75K is a dream. I just bought a 2 family Victorian…was about 1900 SQ ft and we enlarged it to about 2500 sq ft(3000 including the top floor which will be my studio!)…we are gutting the inside and redoing the exterior and the roof, and….this is costing us $400K. We are replacing most beams and doing some higher end things…but that price doesnt include appliances or fixtures. Im not sure if its possible to do a gut reno for $75 K…maybe though.
75k for a gut reno? That is amazingly optimistic. Conventional wisdom is $150-$200 psft. No doubt it can be done cheaper using less expensive finishes, but still…
If you are serious I will be happy to point out things that you need to be aware of. I love property and have owned many different types of property in different places over the last 20 years. I know most of the financial stuff and some of the legal also. Don’t worry, I’m not trying to sell you anything… just like to help a couple starting out. If you are interested e-mail me at roaming-matt@hotmail.com. There is a lot to be considered.
BTW, the reason a vacation house would not help is because the lenders look at your debt to income ratio. If you already have one house, your debt to income ratio will probably be too high to qualify for another. (Unless you’re loaded.)