My wife and I have finally gotten within striking distance on our first rental property.The home is bank owned needs a new roof,some plumbing work and a new kitchen.Otherwise the house is in great condition.Our goal is to buy and hold the property for rental.
The asking price is $73000.My question surrounds financing,I have read that you cannot get a conventional loan on a home requiring a new roof and additional repair.True or False
203k is only available for owner occupiers.True or False
We have 20% down or higher available,credit scores 810/825.The after repair value $110,000 (conservative).Repairs $15000.
Should we approach our bank or is there another way?
I'm sure there are loopholes for both (like duplexes or living in it first for the latter), but generally speaking these are both true statements.
I've purchased all my rentals with bridge loans (normally hard money), improved the property, and "refinance" before the 6 month mark (not all lenders will do before the 6 month mark, so ask first). You'll likely have to put 20% down for the bridge loan, and when you refinance it will cover the bridge note. Combined with a HELOC for the remaining portion of the 70-75% LTV, this is my go-to strategy.
If you use an unsecured loan (like a retirement line of credit), you can often do what's called delayed financing if you don't want to wait 6 months.
To summarize with your numbers, you'll need $15K (down payment), $15K (repairs), $5ishK (bridge loan costs), $2ishK (refinance costs, if you don't roll them in to the loan), $2ishK (holding costs before revenue generating), and to be on the safe side I would throw in another $5-10K for the unknowns. That brings your initial cash costs to just about $39-49K.
With the ARV of $110K, you should be able to get loans of about 82K (75% LTV). Add your $39-49K to the note amount of $73K and you're looking at $112-$122K, which means you would end up with a final cash out of pocket of $30K to $40K with a conventional 30 year note for $82K at a rate that is normally about 0.5% higher than you would get as an owner occupant.
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