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Discussion Starter #1
Kind of an odd question. But has anyone bought a house that needed a renovation without having the money to purchase the property outright? Or using an FHA203(k) loan. Curious as to how people worked it out. I know it can't be impossible.
 

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Are you trying to roll the renovations cost into the loan??

My SIL bought a home that needed renovation,,
he paid for the renovations out of his pocket,,

Simply finance the home for the finance value,,
 

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Truck farmer 55
20 years ago we purchased a home with a RENOVATION LOAN.
The bank had a (for lack of a better title) project manager inspect the property and list all the work that needed to be done along with the cost for each (plumbing, electrical, roof windows etc etc) using contractors.
That amount was added to the price of the property. The property was bought. As things were completed and inspected by the project manager , I received a check to pay the contractor or, as I did most of the work myself, to reimburse me for receipts I had for material used on that particular job. After the renovation was completed any money left over from the renovation part of the loan was deducted and the loan was converted to a regular mortgage.
I hope this helps you, I'm willing to try and answer any questions you have limited only by my memory
 

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Kind of an odd question. But has anyone bought a house that needed a renovation without having the money to purchase the property outright? Or using an FHA203(k) loan. Curious as to how people worked it out. I know it can't be impossible.
Interesting topic. Thanks
 

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I've done this a few times using a heloc on another property to pay for the house and the renovations as they occurred. When it was done I re-financed the rehabbed property to get the mortgage balance to it and paid off the heloc so it was available for the next project.
 

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Truck farmer 55
20 years ago we purchased a home with a RENOVATION LOAN.
The bank had a (for lack of a better title) project manager inspect the property and list all the work that needed to be done along with the cost for each (plumbing, electrical, roof windows etc etc) using contractors.
That amount was added to the price of the property. The property was bought. As things were completed and inspected by the project manager , I received a check to pay the contractor or, as I did most of the work myself, to reimburse me for receipts I had for material used on that particular job. After the renovation was completed any money left over from the renovation part of the loan was deducted and the loan was converted to a regular mortgage.
I hope this helps you, I'm willing to try and answer any questions you have limited only by my memory
This sounds like it was kind of a construction loan which rolled into the house purchase.

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I call the type of thing the OP is trying to do is a need for what I call “creative financing”. It may take some time and a lot of phone calls but it can be done. I feel that most bigger big name banks would turn you down. But with some research you may likely find a small bank or credit union to work with you.

Are you in a farming community? A farm bureau type bank should be more forgiving for something like this also.
 

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This sounds like it was kind of a construction loan which rolled into the house purchase.

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I call the type of thing the OP is trying to do is a need for what I call “creative financing”. It may take some time and a lot of phone calls but it can be done. I feel that most bigger big name banks would turn you down. But with some research you may likely find a small bank or credit union to work with you.

Are you in a farming community? A farm bureau type bank should be more forgiving for something like this also.
Its very similar to a construction loan, at least in function, from my limited experience.
We looked into one a couple times, but never went forward with the purchase.
Most mortgage companies have them, and they arent all that hard to get if you can get a standard mortgage.
The thing about it is, you have to know what you want to do up front, and cant really deviate from that moving forward.
Say you want to replace drywall in two rooms, plumbing in kitchen, and flooring in all rooms but bedrooms.
You list all that, and have to have estimates from the companies to do the work.
Then if anything changes, like you discover another room needs drywall, or the bathrooms need plumbing work, etc, it can be an ordeal to get it approved and added into the deal.
Once work starts, I have no idea how that goes, but my understanding was that they pay out a bit here and there as the work is done, and when its finished, it becomes a normal mortgage.
 

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Discussion Starter #9 (Edited)
Tomorrow is phone call day. I'm calling my usual bank to start. They are smaller and it is a very ag related community. I also could call Greenstone. I have a number for a mortgage broker as well that I've been told gets creative. My fiance chose to try the FHA loan, which I was not a fan of. It's not going to work. We know the owners pretty well and it's probably the most affordable property in our area. We have a contractor lined up and he had already submitted a bid for the total project, I know him personally as well. The FHA loan wanted too much personal information from him that was unrelated to the project so he said he will work with us just not using that loan. I can't say I blame him. We do already have a purchase agreement with the owner so between that and the current bid from or contractor we should just need to find another financing option. Also the woman who is selling it is a manager at one of my banks branches. I'll keep updates coming as this appears to interest some people.
 

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Discussion Starter #11
Greenstone wants 20% down which is very difficult to do. But I did call another mortgage broker that came very highly recommended by my accountant. He does this FHA loan as well as two other Reno/purchase loans. I told him all the details on our experience and he said that most of what the other company wanted is not required by FHA. So that was very interesting. Now comes the task of convincing my bride to be to hold on and take a day or two to let this guy see what he can do....
 

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20% down doesn’t surprise me. Also, if you have less than 20% down you will have to pay private mortgage insurance (PMI) which is expensive.


FHA would be the way to go but the property has to meet a lot of their guidelines. From the sounds of what you are trying to do it doesn’t sound too likely.

But a good broker can be your best ally - hopefully he can pull something out of his hat....

Just for reference about the 20% down - I didn’t have it when I bought this place. But the little savings and loan place we were dealing with put a lien on our old place for the 20% down requirement. Then when the old place sold they got the 20%.
 

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Discussion Starter #13
20% down doesn’t surprise me. Also, if you have less than 20% down you will have to pay private mortgage insurance (PMI) which is expensive.


FHA would be the way to go but the property has to meet a lot of their guidelines. From the sounds of what you are trying to do it doesn’t sound too likely.

But a good broker can be your best ally - hopefully he can pull something out of his hat....

Just for reference about the 20% down - I didn’t have it when I bought this place. But the little savings and loan place we were dealing with put a lien on our old place for the 20% down requirement. Then when the old place sold they got the 20%.
I'm hoping he can. The house really is in nice shape and it will appraise well over what the project cost should be. The inside just needs drywall and part of it a new floor. It's only 968 square feet so it shouldn't actually cost too much. It's just when the loan wants to allow for a $4000 plumbing job that really only costs $1200 things get difficult.
 

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I looked at places like that when I was in my 20’s. A real fixer upper but good enough to live in while we fixed it up. But unless I had cash, forget it. We found quite a few perfect places but could never get into one.

Now adays the place must have a drilled well, proper certifiable septic system, full electric and plumbing, or forget it.

I didn’t have any money and there are no “gifts” like that in my family. I had a good well paying secure job and a good credit rating but that didn’t matter.

I’m at the other end of all that now. Got a 20 year mortgage on this place and like I said used the old place as equity for the 20% down payment. I didn’t owe anything on the old place since I built it myself little by little. We just paid the mortgage off 2 months ago - oh what a great feeling! We were able to keep up with repairs on a 100 year old house but is in desperate need of interior remodeling. We are living with a 1950’s kitchen, bathroom, floors, etc. none of that every bothered me, but now we can start doing some upgrades little by little.

It’s worth the hassle you are going through now. Stay strong. You can make it happen though it will take some patience. I remember when we were trying to get this place - my wife was talking with all kinds of banks all day long. When I came home from work she was in tears most days. But we stuck to it and we’re finally able to make it happen.
 

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Discussion Starter #15
I looked at places like that when I was in my 20’s. A real fixer upper but good enough to live in while we fixed it up. But unless I had cash, forget it. We found quite a few perfect places but could never get into one.

Now adays the place must have a drilled well, proper certifiable septic system, full electric and plumbing, or forget it.

I didn’t have any money and there are no “gifts” like that in my family. I had a good well paying secure job and a good credit rating but that didn’t matter.

I’m at the other end of all that now. Got a 20 year mortgage on this place and like I said used the old place as equity for the 20% down payment. I didn’t owe anything on the old place since I built it myself little by little. We just paid the mortgage off 2 months ago - oh what a great feeling! We were able to keep up with repairs on a 100 year old house but is in desperate need of interior remodeling. We are living with a 1950’s kitchen, bathroom, floors, etc. none of that every bothered me, but now we can start doing some upgrades little by little.

It’s worth the hassle you are going through now. Stay strong. You can make it happen though it will take some patience. I remember when we were trying to get this place - my wife was talking with all kinds of banks all day long. When I came home from work she was in tears most days. But we stuck to it and we’re finally able to make it happen.
I can appreciate what youre saying. Especially the no gifts parts. I myself farm so sometimes that turns lenders off even though I do also do off farm work by "contracting" myself out. We may end up having to step on toes and get another contractor but I told her to hold on until we talk to this other lender. I'll just have to learn to swallow my pride a little by the time this is said and done haha.
 

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Banks- They want to lend you money when you don't need it. And when you need it, it's almost impossible to get it because they ARE ALL under the Federal banking regulations. Six years ago I went thru five month of BS & loan papers with my bank & ended up telling them to go screw off. I then went to a Credit bureau that did farm loans & small homesteads. I told them I needed a construction loan & conversion to a mortgage when I was done. They said OK. Less than thirty days later I had all the money I needed. The Credit bureau paperwork was three pages. Then they apologized to me when they asked me to initial & sign about 75 loan papers required by the Federal Govt. I no longer use a traditional bank for ANYTHING. I have the original Credit bureau that financed my home project & another credit bureau that I use for autos & a line of credit.

Screw the banks. They all stink & they are the ones who are the cheats & the dead beats. Are you listening Mr. Trump. How about making the middle class Great again. And they put Bernie Madoff in jail for a Ponzi scheme while the banks collect millions in fees for loan applications that never go any place.
 

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See Next Post as I provided an updated link which helps answer many of your questions......
 

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Here, I found a really good reference source for you which spells out the differences and details. Very good source of information for you..

FHA 203k Loan Pros Cons and Complete Guide | The Lenders Network

You have to make sure you qualify for a FHA203(k) loan which starts with the basic FICO credit score of 640 or more, and an income to debt ratio of no more than 45% and 41% is also stated as a limit at times.

Your income has to be consistent and very documented. If you are self employed, it makes getting the loan MUCH, MUCH harder as they will want years of income history.

The one advantage of FHA loan programs like the 203(k) is that the lender doesn't have to be a local lender. There are some lenders who work very effeciently with FHA and other lenders who really struggle and take forever.

You can go through a qualification process for you and the property which would be a great place to start. If you or the property doesn't qualify, then don't waste your time going down the traditional lender route.

The 203(k) program is specifically designed for properties which need rehabbing. When you talk to the bank or credit union, if they aren't well versed in the 203(k) loan program, then you are likely wasting your time.

Most loans I have seen which are "Speciality type loans" like the 203(k), they plan on closing taking from 45 to 90 days from the time requirements have been submitted and there are no outstanding issues or documents. But it can be a very tedious process.

The 203(k) program is intended for those who will reside in the home, not for investment properties or for FLIP properties. Also, some Realtors have experience with good FHA lenders which can help.

Keep in mind that what you likely need is a lender which specializes in "Rehab" or "Improvement loans" where you improve the house and property over the condition in which it was found.

Make sure you know what the local codes are and the requirements for an occupancy permit. What will the house have to have improved or repaired for you to be able to live there?

If you can live there an make repairs, your debt to income and expense ratio is going to be more favorable for you.

Also, it doesn't appear that the down payment is restricted from gifts or others, it's just that if the down payment constitutes a loan, it must be included and considered in the Debt to Income and financial obligations. So, if you get down payment money from others, make sure you have proof of whether the down payment given to you from others is either a gift or a debt which you owe repayment upon.

Some programs I have seen want the down payment to be 3.5% of the purchase, which is much easier than the 20%, but much of that depends upon the properties assumed value and appraised value, etc.

The 203(k) loan limit is the same as the FHA loan limit as far as I know. That amount is calculated based upon the values of the property and whether or not the area qualifies as a "Low Cost" or "High Cost" housing area. At a minimun, it looks like the FHA limits for the loan amount are roughly $314,000 in 2019. But obviously you have to have the income to meet the loan payments, so in reality, the actual limits are more tied to your qualifying income than it is on the Federal loan limits.

I have never looked, but I wouldn't be surprised if there is a "Forum" for people who are getting FHA loans and maybe even to discuss their experiences, etc.

If you can qualify for the FHA 203(k) program, it's likely the cleanest and easiest way to get what you are trying to do, done, verses a private loan, etc.

Keep in mind that the seller of the property could also assist you with the down payment if you need it to help qualifying. Again, depends upon their motivation and whether they are losing the house or whether its part of an estate, etc. all of these make big differences.

If the home is already owned by a bank or lender through a default, that also provides opportunities. Some lenders simply want out from under the property and will take a loss or big hit to get away from it where others are looking to build their FHA loan portfolio. All depends upon the facts of your situation....................
 

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We looked into the FHA 203K but never went that route and I don't remember why. We ended up doing a construction type loan and got the loan through a broker.

Our place was a foreclosure and was trashed...really trashed. We had a contractor on board and he had a bunch of paperwork to submit. We had $30K in the construction loan and we ended up forking out another $15K of our own money. Contractor and I had our own side agreement that wasn't written into the loan so some some work was under valued. Stuff like we buy the fixtures and he does the install type of things. We also did some of the work ourselves in conjunction with his work. I ended up doing the flooring when the HVAC system had to be completely replaced when the heat pump caught on fire. :banghead: :lolol:

Once the work was done and approved, the loan was turned into a conventional mortgage. Ours was a 5% down which wasn't ideal but we knew we needed cash on hand to do the work and wanted to keep the loan amount down. We still need to do siding which is a huge expense. Once we do that we can refi and get rid of the PMI. I'm not sure the house will pass an inspection without new siding. We did a new metal roof for $15K last year and haven't completely recovered from that. It's never ending... :gizmo: :laugh: Beats living in town tho...

Good luck!
 

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Discussion Starter #20
We ended up ditching 203(k). We went with a different lender, a broker, and he put us with Fannie Mae Homestyle. The mortgage company is a lot more lenient than the last one. We are currently in the same spot in the process that took us a month to get to with the previous lender. Weve only been working on this for a week and a half. And our contractor is very pleased with the requirements. We are actually saving more money with this loan, PMI drops off at 22% equity and we have a better interest rate.
 
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