Pre Approved.. house in mind... now what?

Question

Me and a friend (business partner hopefully), have found a house that is for sell in his neighborhood. It is the eyesore of the block and really need some cleaning up. The color of the house is horrid, but the siding is in good shape. The lot is very large and could be a very nice home to live in for a family. They are selling the property "as is" at a very discounted price, approximately $50,000 less than all the homes its size in the area are appraised for :D . We have a viewing coming up, and we have just been pre-approved for the amount they are asking for. Now what :oops: ...Do we try to negotiate the price down even further, or do we trust the realtor when she says that if we hesitate we will lose it. Do we also hurry and act on buying the house first before we have our finances in line for the rehab money. Let me know if you can think of anything that I will need to address before even thinking twice on this property. Any help that anyone can provide would be much appreciated.

Tyler

N/A N/A · Answer

Hello,

The credit report will be accepted by lenders during a 90 day period. 
You will not take any "hits" on your credit report as long as inquiries for obtaining mortgage are obtained within 30 days of running your report. When you wait longer than that your scores might go down, which could change your qualification status and/or the rate that you get on the loan.

I would suggest creating a team, including an agent that will look out for you. The agent can advise you on when it's best to put in the offer. Your offer to purchase can be contingent upon a satisfactory inspection.

Getting pre-approved prior to the offer:

There are different opinions on this (Some of us are bias). When the market is hot, some sellers and agents won't even look at you if you don't already have the financing lined up. When the market is not so hot, they're willing to look at any offers.

I'd suggest getting pre-approved for whatever loan amount you're comfortable with. If the property value is lower, then your loan amount is lower.  Take into consideration that there are breakdowns, and with a lower loan amount your interest rate may be lower.

Another suggestion: If you're going to sell the property pretty quick, then get an interest-only loan. This will mean that you'll have more disposable income, you only pay the interest on the loan. Even better if you can get into it with zero down.

Adrian

Dick Green · Answer

Sorry it took so long to get back with you....been working.

Inspection question......I would recommend putting in an offer first to tie up the property, contingent upon a favorable inspection.  Then use the bad stuff on the inspection to try and negotiate more on the price.  It's called going back for a nibble.  Though sometimes inspections uncover issues larger than expected.

Type of loan.....sounds like you are getting sorta ripped on your loan product.  Are you going stated income?  Are your scores less than 700? Is the loan a Jumbo?  Something doesn't sound right with the high fees and rates.  I have a client who is purchasing a tear-down then building new construction.  We are structuring his loan as follows:  Purchase price of existing property($80,000) plus cost of demo and new construction($80,000) with loan based upon value of completed project ($240,000-$299,000).  Construction to Perm interest rates less than 7% and less than 3% in loan fees.

Tax issues......not sure, it's good to have a personal tax professional as a friend that you can call at the drop of a hat.  You're welcome to call my guy if you want but he's gonna want to do your future taxes.

Good luck.

N/A N/A · Answer

Another thing:

Put everything in writing.
This is for your and your friends protection.

Business is business.

N/A N/A · Answer

Adrian, 
     You are acually right we are only pre-qualified, but our credit report has been run and all he needs to pre-approve us is proof of income (last two pay stubs) so hopefully nothing will change between now and when he gets those from us.

Any ideas on some f the other questions I posed, such as when we need to make an offer in regards to the inspection.  Do we need to make the offer prior to getting pre-approved, or get pre-approved for a set amount and then make an offer lower than that (sorry, I am pretty inexperienced)?

Are capital gains taxes avoidable if the proceeds are reinvested with-in a certain time period?

Anyone know any good hardmoney lenders in the KC area that would be willing to point me in the right direction to getting funded for the rehab of this home?

thanks again to anyone who want to put their 2 or even 3 cents in.

N/A N/A · Answer

Hi,

It sounds like you may have been pre-qualified by the mortgage broker.
This is different from being pre-approved. You should get pre-approved if you're serious about this (to avoid any surprises later).
Did the broker run your credit report yet?

Brokering out the loan means that the broker won't be funding it, and that they will get an investor to fund the loan. It doesn't necessarily mean that you'll get a higher rate, but it could.

Good luck!

Adrian

N/A N/A · Answer

Thanks for the input dcg123, I really appreciate the help

I have talked with our lender and he says that he can get us 100% financing with 0 money down, pending any ridiculous debt or horrible credit, which we both have neither.  Since we have are planning on rehabbing and selling quickly, he said "no problem, we will just have to broker out the loan."  Does this mean anything from my stand point other than probably not getting as good an interest rate??  Also we decided to bring in our realtor (since the owner was already using one) and we will use his inspector to do the inspection.  Will we need to put an offer on the table prior to the inspection, or is it possible to have the inspection done before we make an offer?

As for the rehab money, we have been looking at hard money lenders.  Is it common to pay multiple points (say 6 to 8) up front on top of the 14-18% they will be charging as interest?  Our mortgage lender says that those are bad ideas for something so short term, but his option was getting a rehabilitation loan from them on top of the home loan.  Only problem with that is that every single cent of the rehab has to be contracted out, and we were hoping to do the majority of the work ourselves.  Keeping in mind that we are (if at all possible) trying to keep from asking my partners father for the money.  Knowing he would benefit from it, I think he is ok with it, but it is more of a "I need to do this on my own" type of a thing for my friend.

last question being, if we do get this place and everything is a success, is there anyway of getting out of the capital gains tax?  Any benefits to setting up some kind of corp this early (in what is hopefully a long career in this busines)?

thanks again to anyone who wants to throw out a little knowledge that I probably do not have.

Dick Green · Answer

If you feel it's a good deal, throw your hat in the ring and tie up the property while you do your research.

I agree with Ohio... you must consider the accuracy of all data slanted to the advantage of the Seller if you are using the Seller's Agent.  This does not always equate to a bad arrangement being that some agents working in intermediary statuses are quite honest.

The next step is to put in an offer leave a back door in your offer incase you change your mind, and ask the selling agent for some type of concession if he/she wants to work in a dual capacity or still better yet without blowing the transaction ask if it's alright to assign or bring in representation for your behalf, nothing wrong with it.  Depends on the Agent....some less trustworthy agents have a hard time working in an intermediary capacity.

Next have the property inspected....structure, mechanical and pest.  Then get several repair estimates from some contractors. Take a look at the numbers....either proceed or pull the plug.

Keep in mind, using your friend's Dad for financing may be the best option for this transaction depending on the cost of repairs.  The saying in my industry is, "A little money is hard to Find",  which means that loans $50,000 or less are generally premium priced with extra points and fee amounts.  Depending on credit, it may be possible to apply for a finished product loan whereby financing is based on the completed project's appraised value.  Either case, there's nothing wrong with submitting an offer with a 15 to 20 day clause stating that you must be able to secure appropriate financing as a contingency.

Good Luck!

N/A N/A · Answer

It is a fix and sell, and yes it was the sellers agent, so I assumed she was doing just that.  THe repairs would include paint inside and out, minor updates in kitchen/bathroom, and possibly refinishing the deck.  There also is an unfinished basement and were thinking of finishing it for as little money as possible (some inexpensive carpet, and sheetrock), nothing too elaborate.  If all else fails in getting a loan for the repairs, my partners father would be willing to act as an investor for the amount of the repairs, for a small fee.

let me know what I need to be thinking of in terms of laws, taxes, etc...
It sounds so cut and dry to buy a house fix it and sell it, but I know that is not the case.  Also, what would you recommend in terms of what fix up options get the best return upon sell.

thank you for your help Ohio, and anyone else who wants to chime in I would greatly appreciate it, as I am trying not to be part of the statistic of those who lose on their first deal and then never try again.

Jim Gordon · Answer

I would make sure I had my repair money lined up before you make a purchase. Would you open a store because you could get a good deal on the rent and fixtures and then try to come up with money for merchandise?

Also the agent that said you have to hurry or you will lose it, is this the sellers agent or your agent? If its the listing agent that persons job is to represent the seller to get the highest and best deal for the seller. What do you think the repair costs of the property are and will this be a buy and hold or a fix and sell?