Purchasing 1st property using Homepath

18 Replies

I don't have the cash for my 1st property I'd like to purchase as a holding. The house is next door and I have been in it. The only thing that NEEDS to be done is a new kitchen. Homepath is requesting a 20% down payment. Can I get a 10k personal loan and use that as the down payment and the have the rest as a mortgage? The prop is listed at 45k. And the tax assessment is around 110K. Here is my plan... 10k personal loan then the homepath mortgage for the remainder. Use my credit card which has 0% financing for 2 yrs. to put in a new kitchen. Should be around 7k. Rent it out section 8 $1350/mo. Then a year later(or as soon as I can) take out a HELC for 50k pay off the mortgage, the credit card and the personal loan. Then use the income from renting and I should be able to pay off the HELC off within 5 years. Does this at all seem plausible? The other question is I don't really have any assets. But I gave a credit score in the 7s and never been late on anything. Income is about 3k a month. BUT I have a mortgage and student loan which total 1k a month.

Mindy,

I'm a very seasoned investor and this deal would scare me, to many what ifs.

Is the house a possible flip? and where is it?

Why does it scare you? It is a poss flip it would take about 25k. In a C area.

There are to many things you need to go right for it to work out for you over a long period. I'm not sure what you mean by C area? Tho I can see the whole deal, I would say try getting it 10,000 cheaper then rehab and sell. If your market is right for flipping. Also sounds like this may try up your future buying power.

I agree the financing part has to go without a hitch. The monthly payments are manageable with the property empty for up to 6 months. Then things will get tight. I am hoping to get it cheaper but from what I heard Homepath is a bit of a stickler on prices for the first 90 days. I am a DIYer and the kitchen is small might take a weekend to get it in if there are no surprises. I'm not worried at all about it renting to section 8 the list is years long here. It's the financing part that has me worried. I don't know if banks will do it. And I don't know when I would be able to or how the home equity line of credit works with a personal loan and mortgage already out. But that's what I would like to use to pay everything off and it would end up being about 700 a month cash flow once that happens.

This sounds like someone juggling chainsaws while tightrope walking over a fire pit. Too many variables and too many ways to get hurt financially. I'm definitely a rookie, but I absolutely would not do this.

The creativity is impressive, but I would suggest something as simple as: save some money, keep your credit score in the 700s as you have, and find the next deal when you can actually afford to buy. I don't mean to be rude, but, boy does that seem a dangerous way to start. Your risk appetite is very impressive.

I live in a mixed neighborhood of longtime homeowners and there maybe 4 section 8 homes.

OOh Sydney do you know a decent real estate agent? My parents are looking to purchase a winter condo in Myrtle Beach. My dad is a golfer so he's looking for on a golf course or beach front.

@Mindy Pearmon I like the fact that you are trying to be resourceful and figure out a way to make it work to get that first property, but the scenario that you laid out is way over leveraged and leaves you overexposed to financial disaster. The 10k personal loan would have to be paid simultaneously with the new mortgage and the rest of your bills. If you use your credit card for the rehab, what else would you have to fall back on for (un)expected expenses?

The repair estimate concerns me too. You said a new kitchen would cost 7k and that it would take 25k to rehab it for a flip? It's very easy for a 25k rehab to turn into a 30-35k rehab for a new investor.

You mentioned the tax assessed value of the property. Are properties in the area actually selling for that price? That's what matters, SOLD comps.

Not to be a total buzz kill on your idea, I think your best option if you can qualify for it, would be a "Homepath Renovation" loan that covers the purchase and repairs all in one loan. The lenders have different requirements and some will offer 15% down payment to investors. Find the lenders here and talk to them about your options:

http://www.homepath.com/financing-renovation-lenders.html

There is a different set of lenders for regular Homepath and Homepath Renovation. It's all there on their website.

If this doesn't work, there will be other opportunities when you are better prepared or find ideal terms that aren't as unnecessarily risky. Risk is necessary and always present in REI, but you should not take unnecessary risk.

The rent vs the purchase price is AWESOME (music in the background kind of awesome!) However, most lenders require 1 year of rental history to consider that income, and you will NEED that to be counted as income to refinance, in my opinion. You are already 33% debt to income without even considering any of your other debt as you sit. Without the additional income (from the rental) counted, you might not have the options available that you envisioned to re-finance. I don't believe Homepath will allow you to place another lien on the property for the down payment (I assume the personal loan will place a lien on the subject property).

I don't want to discourage you, because you are smart to add real estate to your monthly revenue (very smart), but this seems like you have limited discretionary income to be financially comfortable in a high risk endeavor.

Also you might wanna ck with Homepath & seasoning requirements. From what I know, most Homepath deals require you to be purchasing as owner occupant, and reside there the first 12 months. They MAY have investor deals now, I'm not exactly sure. Just ck first because all our Homepath deals here, you have to prove you're buying OC, & have to sign an addendum stating you'll reside in the home for at least 12 mos. They DO have investor prop's, but they sell them a little differently...thru auctions or pools. It may be totally diff where your at tho...

Thank you guys so much for the feedback. @Robert - I already looked into the Homepath Reno they want you to live in it. The comps in the area are selling from 100k-135k. The 25k would be for things that are cosmetic that is on the high end. It already has new plumbing, elec, roof, windows, and furnace. And the 7k is for a mid level kitchen. I don't know I guess I thought if I can qualify for a 30k car with 2% interest over 5 years. Not including the hike in ins. Then I should be able to swing this on a loan that is over 15. Here are the numbers in all: 200 mo/loan - 337mo.mortg - 30/mo home warranty, - 175mo/prop tax. IS there anything else I'm missing??? Fortunately I have a job that I can work as much OT as I like. I just don't have anything to loose at this point...

You could lose your currently great credit score if things go belly up. I think that's worth protecting, because when you find another deal, you'll want/need this to get a favorable loan. If not , it could take you much longer than expected to be truly ready. Just my two cents.

okay okay!!! I give up!! You guys win. I'll be patient and diligent and save and save some more....

Good Morning Mindy,

I do, I own a real estate brokerage company here in MB and NY. If you like call me when you can and I will give you some inside info to get them a great deal

We just had two condo's on a golf course sell for less the 13750 and 9750 each. 315 398 3322 or skype me chasesydney I know you said golf but we also just had a ocean front view for 38000.

Mindy,

Love your post and creativity. Here's my suggestion. Can you get your parents to partner up with you on this deal? If they can afford a winter condo, they can probably afford to cut you a $50k check without losing any sleep over it. Call it early inheritance or whatever. To me, it's a cheap lesson if the deal doesn't work out, but it's a great opportunity to help your daughter get ahead in life.

Don't forget to send them their dividend every month or quarter when the profit starts rolling in.

Cheers.

That was the 1st route I took. And you're right they have the $ BUT they aren't risky people AT ALL. Very 9 to 5 oriented

What concerns me about the deal as some pointed out is you need several key factors to work out to make it go. I would like it alot more if you had that down payment in hand. I just see to many things dependant on borrowing. This whole industry tanked from too much leverage a few years back. The people who were over leveraged we decimated. If you look thru the posts on this site you can see much of the same thing happening again. I would suggest to wait a bit and get more things in order. Your chance on these type of deals is not going away any time soon.

Good Luck

I also wanted to point out that your down payment strategy might not be cool with your lender. They are looking for you to have skin in the game and borrowed down payments tend to scare them off. Additionally, most lenders will want you to have 3-6 months mortgage reserves on both your investment property and your primary residence in some liquid type account. Homepath is a good way to acquire properties but it definitely has it's drawbacks.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you