Bank owned home that needs a lot of work…?

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We have found a bank owned home that requires a lot of work which we can do at a fairly low cost being that we have family/friends that are licensed in different trades and are willing to do the work at cost…. the problem is, my boyfriend is VA approved and the listing agent doesn’t seem to think the house is habitable enough for the VA to approve the loan. He has recommended an FHA 203k rehab loan… which requires using a HUD approved general contractor and will end up costing us a lot more for the repairs.

We have fallen in love with this house and are trying to get creative as to what kind of financing we should use to try to get this house. We would like to finance the $ to do the reapirs in with the mortgage if at all possible since we’d be getting such a good deal. We do have some $ to put down if needed, but not enough to go conventional and if we do have to come up with the 3.5% for FHA, we’d HAVE to finance money to cover the repair costs. We’re lost as to how to go about this, everyone keeps telling us that no lender will lend the mortgage and $ to do repairs but I don’t know if that is 100% accurate. Any ideas on how to go about doing this? Thanks in advance!
We have $ 10K in savings, and this house is 70K less than what we were preapproved for. We are in love with the neighborhood/layout, etc. It fits all of our “high demand” needs & is already appraising for 30K over what we’re offering with the cash in hand to do the repairs. That was all I meant by “being in love” with THIS specific property.
Part of what we love about it is that we could fix it up and redo it OUR way making it practically brand new and have so much equity in the home because of the sq footage and location. But if we use what we have in savings, we’re looking at having less $ to do the repairs from our own pocket… and of course, we’d like to have $ of our own to fall back on in case of emergency.
We have the 3.5% to put down. We’re also not buying together, it’ll be in his name. I’m a full-time student so it’s in our best interests to put it in only his name at this point. We’re also not 100% on marriage… not because of the relationship, but more because I’ve been down that road before and I’m not sure I’m ready or even want to do it again. He’s all for it. Thanks though, Lauren, we have thought about those things in making this decision.

5 Comments
  1. Reply
    David Z
    May 16, 2011 at 6:01 am

    walk away. falling in love means you have lost perspective and are no longer making rational financial decisions. there are other properties out there.

    fha and va loans are tough for homes in poor condition.

  2. Reply
    OldJimmy
    May 16, 2011 at 6:42 am

    Your friends are right. Even more these days, the collateral is a large concern for the lender. The days of repair escrows are long gone.

    Your statement about falling in love with the house and trying to get creative with the financing is a huge red flag that you need to see. You are getting way to close to the line in terms of being able to afford this particular house, are walking onto quicksand, and your emotions are not allowing you to see this.

    If you are so cash-weak to not be able to come up with a decent down payment, you need to forget this one and go look for something that isn’t going to start draining you of cash as soon as you get the keys. This is a huge investment that has the potential of cratering you financially if you allow your heart to overrule your head. You’ve got to know when to fold ’em.

  3. Reply
    infinite crisis 247
    May 16, 2011 at 7:00 am

    your friends are absolutely right. an FHA 203K was your only shot here and even that would only be if all the numbers added up correctly (and as you stated with HUD approved contractors). i realize that you have fallen in love with this house, but it seems like you might be getting in way over your head here. personally, i would run, not walk away from this home and find something that’s a bit more move in ready.

    ever see the movie “the money pit”? you would be living it if you bought that house. most areas are still a seller’s market with plenty of other homes to choose from. that being the case there is no excuse to give away your leverage and your sanity by falling in love with a lemon.

  4. Reply
    Lauren F
    May 16, 2011 at 7:02 am

    Sorry but if you don’t have even 3.5% to put down, you need to stay renting and continue to save. Walk away from this deal. No house goes to closing with only 3.5% down – it will be closer to 7% – 10% of the purchase price by the time you are done with prepaid interest, taxes, escrows, closing costs, inspections.

    And, this is your boyfriend (not your husband!)? Never buy a house jointly with someone you are not legally married to. What happens if the relationship breaks up? Who will get to keep the house? Who will buy the other out? What if neither of you can afford to buy the other out – how will you refinance or decide to sell it.

    If you do decide to buy under these conditions, you will need a real estate attorney to draw up the deed to make sure you have your interest protected, which is another few hundred dollars I’m sure you weren’t planning to spend.

    The only option I can see is to ask the bank that now owns it to finance it for you and come up with the cash for the downpayment.

    But, really, all signs indicate you are not financially ready to own a home.

  5. Reply
    chatsplas
    May 16, 2011 at 7:47 am

    Both FHA and VA loans require inspections. Talk to a realtor, FHA/VA inspector, lender, to find out what is possible.

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