Need AdviCe on Reno Financing
Hello, My husband and I want to make an offer on a property that is about 20% to 25% below current market value. We have the 20% down, however we do not have the $200K needed for the reno. Is a 203 Rehabilitation Loan our only solution? Can we obtain a solo renovation loan after…
Hello,
My husband and I want to make an offer on a property that is about 20% to 25% below current market value.
We have the 20% down, however we do not have the $200K needed for the reno. Is a 203 Rehabilitation Loan our only solution? Can we obtain a solo renovation loan after close? What are the current rates for the above product?
Finally, my husband’s business partner offered us private financing @7% for the equivalent of the 203. Should we just run with that for the moment and refinance later.
Thanks
Commenting as one with a 203K loan who closed a few months ago….if you are considering them there is good and bad. Good: you don’t need 20% down, as a matter of fact, they only accept no more than 5% down. The price of the house + renovation money can’t be more than, I believe, 750K. Or something similar. That leaves you more to renovate. Bad: the loan is problematic in many ways, least of all being it will take you 6 months to close. I didn’t believe it when I read it here. But it’s true. Also even if you do, say, 500K for a house and 200K for renovations, know you will be putting up more of your own money, even if you think repairs are all accounted for in the loan. But maybe that works for you, if you were prepared to put down 20% and only have to do 5.
Hmmmm. Twenty percent down without the means to pay for the renovation sounds like 2005 thinking to me. The rules of the game have changed so drastically in the last two years that you may not even get a mortgage on a building that needs a reno. I’m not saying it’s going to be impossible but your options aren’t as varied as they were during the boom. Why is the building 20-25% below current market value? Could there be issues you aren’t aware of? I’d be wary of borrowing from a business partner for the reasons stated above. I’m writing this as someone who took some crazy risks on a house that needed a gut rehab when we didn’t have the money to pay for it, but it was a totally different financial climate then. If you can make it work, best of luck! Just think through all the possible nightmare scenarios before commiting.
“We have the 20% down, however we do not have the $200K needed for the reno”
define “needed” reno costs. can it be lived in? if no, then you might not have enough money to play the current game. but hey, that never stopped anyone before. almost sounds like a 2002 question.
what if your contractor skips town or for some unforeseen disaster or you go 2x over budget? what if you pull an Annie” Leibovitz and the foundation cracks and there is a fight with the insurance?
pay close attention to the terms of the offer – is it a bridge loan or permanent financing? i didn’t think 203k programs are anywhere near the amount that you need. what if your business partner decides to tighten the screws in 1-5 years (or his ex wife in a divorce) if you can’t refi him out? could it take you down?
there is a reason these loans are hard to come by – people are not recouping anywhere near 100% reno costs. and lets face it, a refi after a reno is essentially a re-up and “flip-like”, even if to yourself – the bank is still cashing the reno out.
is your husband a GC? that would surely help if its his area of professional expertise. otherwise in good conscience its hard to say yes to such an general question.