Mortgage advice for brownstone which needs renovation
My wife and I are looking at a brownstone in Bedstuy which is in need of renovation. The property is a 4 floor, single family that needs quite a bit of work (plumbing, electrical, kitchen, bathroom, a few windows/walls etc). For obvious reasons, ideally we would rather not do a FHA/203k loan. What experience have others had in mortgages for properties such as this? Do smaller banks have better programs? If so, who? Ideally we would love to finish one floor quickly to live in, then finish the other floors over time. We have a 20% deposit, plus at least enough cash to make one floor live-able. Any experience/help others may have in this area would be really appreciated. Thanks in advance.
rene
in Mortgage 10 years and 4 months ago
15
Please log in, in order to post replies!
15 replies
leftbankdesign | 10 years and 4 months ago
Just wanted to add a note recommending mortgage broker Adam Roberts who is in on this feed. He has just gone above and beyond helping us line up tricky bridge financing for the purchase of a 4 story brownstone in Clinton Hill needing a gut renovation. He was tireless, creative and speedy. COuld not have done it without him.
rene | 10 years and 4 months ago
Thanks, really interesting. The reason behind wanting to go for a regular mortgage over say a 203k is the fact that we would love to do as much of the work ourselves as we can. With a mortgage such as a 203, all the work needs to be pre-approved, pre-sorted, with quotes etc etc as a condition of your loan. Obviously this doesn’t fair well if you’re wanting to do work yourself/organize your own windows/plumbing etc etc. We’ve only recently moved to the States from and it’s interesting to find out how different things work. Where we’re from, a property is given a valuation, and wether it’s livable or falling down, that valuation is what the house is worth, so therefore what they bank will lend on it. The condition doesn’t matter so much.
mortgagepro | 10 years and 4 months ago
The FHA 203k loan product from HUD is not the only option for renovation financing. There are alternative loan products which will utilize the lesser of the as-completed appraised value of the property or the sum of the purchase price of the property and the total rehabilitation costs. This way, in some cases, the Loan To Value (LTV) will drop <80% and no Mortgage Insurance would apply _(unlike the high MI premiums associated with FHA which we all dislike)_. However, like the 203k, these renovation products are not Jumbo loan products and the maximum loan limits will be the factor prohibiting the feasibility of many scenarios not to meet guidelines. For example, the maximum Loan Limits for BK are: 1 Family 625,500 2 Family 800,775 3 Family 967,950 4 Family 1,202,925 Each scenario is truly unique and there are many variables in order to meet a specific loan products guidelines. I have processed these (and thousands of other loans) for over 20 years and happy to assist if anyone has questions. Adam Roberts South Shore Mortgage
camp6ell | 10 years and 4 months ago
Wells Fargo does a “renovation loan,” which is like a 203k but administered by them alone, no government involvement. They will bury you in paperwork. You’ll be dealing with near-minimum wage clerical staff that work all over the country and have no idea where Brooklyn even is, far less why someone would pay that kind of money for a fixer-upper. They’ll ask you the same questions and you’ll give them the same answers over and over again. they’ll lose your paperwork, your paperwork will expire and need to be renewed, and they’ll need to keep checking your credit reports on a regular basis to make sure nothing changed on your end (apart from your scores going down because they check it so often!). Lastly, the live body you dealt with the first time at the bank is going to be useless after that first meeting. If you like bureaucracy and idiocracy, this is the loan for you.
chemosphere | 10 years and 4 months ago
Well, perhaps this is another one of those things where it depends on if you are paying well over comps for a landmarked building or buying a fixer upper at an appropriate discount. My house had flaking paint, chipped plaster, cracked tiles, bad water pressure, leaky porch, problems galore. Appraisal was fine. He was in and out in about 10 minutes. It said “Average condition” and “livable as is” which is perfectly true unless your renovation is featured in the nytimes style section. There is a difference between “could use new plumbing” and “has no functioning plumbing whatsoever”.
slopefarm | 10 years and 4 months ago
In terms of financing, I can only tell you what worked in 2005, which was a VERY, VERY different time. But conceptually what you are trying to do is finance the renovation with the anticipated value of the completed home, which will be significantly more than the purchase price of w wreck. We obtained a mortgage that financed both the purchase price and the renovation based on an appraisal that anticipated the renovated home’s value. We had to front construction payments to the GC but would get reimbursed from loan proceeds as aspects of the work were completed. I am not sure what is possible now, but your circumstances are ideal to discuss with a good mortgage broker to see what’s out there. Call Adam Dahill or anyone else that is regularly recommended on the forum.
resident2 | 10 years and 4 months ago
The budget does not work for a $1,000,0000 +/- (which is where a house in Bed sty needing work is selling for?) one family house for a 203K loan. I have seen some idiot Mortgage Bankers convincing their dreamer newby buyers to apply as a four family. (the 203K budget will give you enough) but that is fraud and not worth the constant head aches, sleepless nights etc. Even if you do find a bargain that the numbers with a 203 K will work for you will be out bid by a higher cash bidder. No seller will go to contract in this market subject to getting a 203K loan… that window of opportunity has closed for this market. It will work well in Detroit or many towns UpState.
no-permits | 10 years and 4 months ago
@chemosphere, the flaking paint thing is widely known. you will get denied or have to fix it and have the appraiser back out to verify.
sunsetpark2deanst | 10 years and 4 months ago
Flaking paint and chipped/loose plaster came up during my appraisal inspection for my initial mortgage and again during the refi appraisal inspection. I was surprised because it wasn’t large areas. I even had to repaint my stoop to pass inspection. I would go the 203k loan route if I had the opportunity if I were you. Good Luck.
chemosphere | 10 years and 4 months ago
“To get an 80% mortgage the Bank appraiser needs to see that it is livable; that means no flaking paint or falling plaster ceilings. Working kitchen & baths, roof, windows and boilers in working order; and Banks have tightened up the appraisal process since Cate bought her house!” I don’t think all of this is necessarily true. Flaking paint? Every house has flaking paint. You are not going to get denied a mortgage because of flaking paint.
jockdeboeraia | 10 years and 4 months ago
Just curious as to why you do not want to use a 203k. It is the only way to go and I would say almost every client I have in BK use them. I’ve only seen one be a problem out of mayb 50 or so. You do need a good HUD inspector and cash on hand for things the loan will not pay for.
cate | 10 years and 4 months ago
Try a mortgage broker who does a lot of work with Brooklyn houses or your local community credit union in the neighborhood — there is one in Bed Stuy.
resident2 | 10 years and 4 months ago
There are no banks or private money lenders that will lend to you with “Only” 20% equity. To get an 80% mortgage the Bank appraiser needs to see that it is livable; that means no flaking paint or falling plaster ceilings. Working kitchen & baths, roof, windows and boilers in working order; and Banks have tightened up the appraisal process since Cate bought her house! And if the house really needs that much work; I am sure the sellers Broker & or Attorney will not accept an offer subject to an 80% mortgage contingency. You will find it easier to buy a house with ugly new kitchen & baths and change over time. There is a lot of money to made in Ugly & dirty!
BSDOD | 10 years and 4 months ago
You better have a strong marriage/ relationship to do what you are contemplating…it will be tested.
cate | 10 years and 4 months ago
Not quite sure what you are asking. The house must have kitchens, bathrooms, a roof, etc., to qualify for a regular mortgage. If any of these items are missing, you must pay cash or obtain a 203K loan. . That said, our house was in very poor condition when we bought it (also Bed Stuy, 2009). In truth, the gas wasn’t hooked up so the stoves weren’t really operable, and if you turned on the water, all the valves and such would leak cascades of water all over the place. The boiler was half rusted out and missing a piece. Walls were cracked, etc. So it didn’t really have working kitchens and working bathrooms, exactly, but they were present and LOOKED ok. The inspector our lender sent out didn’t look too closely, I guess, or wasn’t concerned with it, so we got a regular mortgage. . So make sure everything looks all right — stoves in place, etc. . As for the rest of it, we also did the bare minimum and moved into the top unit, intending to renovate the rest of it later and do some of the work ourselves. That did not work out as we planned. In retrospect, we should have planned on doing it all at once using a licensed contractor before we moved in. We would have saved money in the long run, time, and an immense amount of aggravation and hassle. . OTOH I do know people who have done a renovation in stages successfully. I think the key is you have to do all the electrical and plumbing for the whole house at once, close up the walls, plaster, etc., finish the top unit completely, then make sure any work you do in other areas can be completely shut off from where you are living. Don’t live in any area that is not finished. Make sure floors are refinished last, after plastering (and/or painting — painting can be last). Hope that makes sense. An architect could help plan the stages, if you are using an architect. Many decisions will have to be made in advance. . Good luck!