Down payment
I am looking at purchasing a property that is a tri-plex to buy and hold. It is listed at $31k. I plan on offering $25k although it will take approx. $45k in improvements before it is move in ready. Will my 20% down payment for financing only be based on the sale price of the house or improvements as well?
for an investment property it is my understanding that whatever your offer is be ready to put 20% down, I do not believe it covers rehab costs that would be separate. so 100k home would be 20k down and maybe need 10k in rehab for a total out of pocket cost of 30k.
@Aaron Barrett Your down payment will always be based on the sales price of the property unless you are using a renovation loan. It will be hard to get a renovation loan for investment purposes with the renovation cost outweighing the purchase price, as Fannie Mae Homestyle loans limit renovation costs to 50% of the property's after improved value. It will be challenging as well to get a loan for such a low amount ($20,000). If you aim for the renovation loan at least your loan amount will be larger.
-
Broker CA (#876196)
- Instant Rate Quotes, Inc.
- https://instantratequotes.com
@Aaron Barrett the 20% down is for the purchase price, but for that low of cost it is going to be difficult to find a bank willing to lend on it. Another option to look at would be getting a 203k loan, which adds the renovation into the loan. That could get you up to an amount that a bank is willing to look at. I've not used the 203k before so am unsure how they decide if it is worth it.
If it has a high ARV ($110k+) you can look to private/hard money to acquire and rehab, then once it's all done and appraised at FMV you can cash out refinance and pay the investors off. This requires that you actually understand the rehab and the ARV as well as being loanable (is that a word?) to banks. I'd make sure to line up a bank that supports that strategy and agrees that the type of deal is something they would do with you before you go locking up short term financing.
Thanks for the advice everyone!
@Bryan O. & @Aaron Barrett - a 203k is for a primary residence only. If this is an investment property, @Stephanie Medellin made a good suggestion with FNMA Homestyle which is a renovation loan that can be used for investment properties. Generally, it will be challenging to get a mortgage for less than $40,000-$50,000 as there are certain fixed costs that would make it unprofitable for a lender if the loan amount was less than that. From a borrower's standpoint, there are also fixed costs such as appraisal and title fees that reduce the practicality of a smaller loan amount.