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Financing new home purchase and remodel?

1,567 Views | 11 Replies | Last: 6 yr ago by SteveBott
rilloaggie
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AG
My wife and I are looking to purchase a new home(our first) and are looking at one that we both like. Great lot, neighborhood, right location etc.

The catch is the house needs work. It's 50 years old, needs floors, kitchen, bath, windows, and definitely some foundation work. I work in residential construction(foundation engineering and code inspections) so between my know how and network I'm not too worried about the work side of things. I just don't know the best way to finance this.

This home is listed at ~$240,000. Comparable houses in the area are $350,000 plus if they are remotely updated(the two nearest this house are $400k and $435k) I'm meeting a realtor and crunching numbers now but assuming the appraisal comes in at $240,000 how would you go about funding an additional $30-40k of improvements on the home? Separate loan all together? Make minimum down payment and use the money we've set aside for repairs/improvements?

If we get this house we'd have room to grow and would plan on living there for the foreseeable future fwiw so I'm not too worried about flipping or needing to make an instant profit off this. Just curious what the lenders or other buyers recommend. TIA
LauraHoward
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Looks like a fair deal to me, what your realtor has to say?
26.2
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OP, my wife and I were in a very similar situation when we bought our first house. We did a combination of:

1. Home Depot and Lowes Credit Cards to finance projects at 0% for 12-24 months
2. Pay cash as you go
3. Did almost all the work ourselves.

Now, that probably put more stress on us for about 1.5 years because the house was in a constant state or construction. If you wanted to do it all before moving in, I can think of some more possible routes:

1. There are actually federal loans for these specific situations. I forget the acronyms, but I can put you in touch with a lender who knows the full details. The gist is that you get an appraisal before you buy for the value as is, the value once renovated, and cost to renovate, and the lender funds you at closing and releases money to contractor as projects get completed.

2. Personal line of credit / Family loans / 401k loans

3. Credit cards

If you want to talk more, I'm happy to give you my phone number to discuss. I work in real estate and have a brokers license and do some resi renovating/investing on the side, so I'm happy to help however I can. I'm excited for you man. If you can make this work it will set you up in a great spot.
Django16
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AG
Just based off your post it seems like a FHA 203 (K) or FHA 203 (K) limited loan could be a good option. I am a lender here in Texas, if you would like to talk more feel free to PM me!
rilloaggie
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I was looking into those last night. How hard is it to fund DIY repairs with that type of loan? I would hire out any plumbing or electrical but I have a good grasp of carpentry, cabinets, flooring, replacement windows and other smaller jobs. I'm not opposed to hiring those out if it's my only option but it's hard for me to want to pay labor on jobs I'm more than capable of handling on my own plus a few friends and beer.
Django16
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No it has to be done by a lender approved contractor. If you decide to go the 203 (K) I would just include the jobs you would like to hire out.
Ft.Worth_Ag
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Rillo,

FHA 203(k) was mentioned above. Also check out . FNMA HomeStyle renovation. It's a conventional product - could be a better option for you if you have a high credit score. As you'll see - you can do some of the smaller reno work by yourself.

We offer both products - let me know if I can help.

j Allison@ servicefirstmtg . com

K_P
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AG
26.2 said:


1. Home Depot and Lowes Credit Cards to finance projects at 0% for 12-24 months
2. Pay cash as you go
3. Did almost all the work ourselves.



+ 1 for this route. It's simple.

Wife and I did this a year ago and I was happy with that route. I used the discover it card which had 0% for 12 months.
rilloaggie
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AG
Do you mind me asking how much you put into your remodel? Still working on the math but after visiting the home we are now looking at $50-60,000 to remodel fully. Our realtor pulled comps and the home is at $114 psqft currently and there are comps at or over $200 so it still may be worth doing.

We don't want to live in a construction site and would like to get all the repairs done in a few months. I don't think the credit card will work for our needs.
26.2
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You could get a personal line of credit for $60k. Either secured or unsecured.
K_P
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AG
No, I don't mind. We put probably $40k into the house. In brief, I used 20k of what would've been my down payment money for the remodel and charged 20k onto the 0% interest credit card. I paid off the credit card over the course of 2017.

Details on the remodel
  • Removing 2 load bearing walls and installing beams and associated sheetrock work ~$3000
  • Rewiring and repiping about 1/2 the house ~$8000 ($3000 of which was paid by the seller)
  • New gas line $3000 because he found a couple leaks
  • Engineering and permits $1000
  • New cabinets and countertops $10,000
  • New floors throughout (engineered hardwood) $5000 or ~$3/sq ft. Saved a bunch here doing it myself.
  • New trim $1000
  • New paint was maybe $750-1000, painted ourselves. Dont under estimate the cost of paint.
  • New appliances $10k (wall oven / microwave combo, DW, W/D, cooktop, fridge, vent hood). We really bought nice appliances because we love cooking. You could be happy with $5000 for a package deal.
  • Yard work $1000

Details on financing
I had a good mortgage broker, recommended on TexAgs and an Aggie. His name is Jed Arnett, I can provide contact info if you're in the Houston area.

I had saved enough to put 20% down on the house. I thought that I would be paying through the nose if I did not put 20% down. Jed's idea was to put 10% down on the house and put the other 10% into the remodel.

My specific loan is a "regular" mortgage (not FHA or anything) for 15 yrs at 3.5%. I will pay PMI (about $45/month) until I get the house appraised with the remodel. I will probably do that in the next couple of months. I have no doubt it will appraise at >20% LTV. I can stop escrowing if i choose and stop paying PMI.
K_P
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AG
I should add the final costs for the remodel were about 50% more than my original estimate in both time and money. AND I estimated what I thought was cadillac after reading "double the money, triple the time!" on TexAgs.
SteveBott
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Another option is stack a home improvement loan on top of the first mortgage. I am not sure on the terms so you would have to contact them.

http://www.certifiedfunding.net
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