Financing Options for Buying a Home that needs renovation?

Question

Hello Everyone,

I am pretty new to the site, but have been lurking every now and then for the past few months.

I am in the process of purchasing my first home. I am currently renting, but am ready to own my first property because I am tired of paying someone else's mortgage and not my own. I am 27, single and  live in Atlanta, Ga. I plan on renting a few rooms to my friends to help pay for the mortgage and to allow me to save up to purchase another property as soon as possible because I know that I want to get into the buy and hold real estate business.

The area I am looking at has a lot of vacant homes that need a lot of work done. Some are cosmetic repairs, some are complete gut jobs to make them livable.  I only have enough capital to use for the down payment and would not have any left over for the renovation.

My question is, What are some of my options for financing a home that is not immediately livable? or one that only needs cosmetic work?

I have some experience with renovations as I used to help my father do some minor renovation work, but I have no experience with major renovations. I am also a licensed architect so I am very familiar with the construction industry and what all goes into the construction of a home. However, I don't want to get in over my head on my very first purchase, especially since this will be my home first and foremost, and an investment property second.

Any information or advice would be greatly appreciated.

I look forward to diving in to the real estate world with everyone of the bigger pockets world!

Cheers,

Andy M.

Caleb Brown · Answer

Andy,

I am pretty much looking to do that same thing here in Richmond, VA. I was originally looking for a lender that would let me do repairs on the house before close using an escrow, so the house had to have just enough wrong with it to not pass and scare people away...but not too work much because the escrow was going to be limited to an amount of $3,333. On top of all that the #s still had to work in the end for the flip to be worth it. It was very difficult to find a deal that fit all of this criteria. The problem is the only one I found was the second house I looked at 2 months ago and I just wasn't ready to buy yet. (and the equity available after repair was likely lower than my goal)However, now I have been approved for a 203k rehab loan and my options have opened up big time. With the rehab loan available to me I could buy a really run down home, have contractors make all the major repairs (for which the cost will be rolled into the mortgage), and then live in the home for a year or two while doing the rest of the work. I plan to rent out a room during that time as well. Rehab loans are more costly upfront, but if you can make it work that may be the way to go. Now I just need to find the right deal.

Caleb

Colin L. · Answer

Welcome Andy!  With your goal I would recommend reading up on FHA 203K loans.  They only require 3.5% down and you can roll repair costs into the loan, as well as up to 6 months of mortgage payments while renovations are ongoing.   As an architect, you are in a great position to use your skills to put some "sweat equity" into a fixer.

Crystal Smith · Answer

Since you intend on living in the property you should research 203k loans