Financing a house in need of some renovations
New to Real Estate · WV · Member since 2023 · 55 posts · 30 votes
Financing a house in need of some renovations
Most Popular Reply
Member since 2023 · 6 posts · 3 votes
3yQuote from @Jarret Durst:
Hello BP people. I’m going under contract for a house for 40k. This is great, but I’m running into some issues. My original lender said I have to spend at least 100k for a renovation loan (mortgage+renovation costs). Then other lenders are telling me there is no such thing. So, I’m lost, what would be the best approach for me? The house is estimated at $170k.
thanks y’all
Just change the lender to more flexible one (like me;))
27 Replies
- 3yMark MunsonBusiness MemberLender · Orlando, FL · Member since 2022 · 440 posts · 300 votes
Most hard money lenders will look for a total loan amount of at least $75k. They also tend not to like when a rehab budget exceeds a purchase price. What is the renovation budget you are requesting?
- Real Estate Agent · Northern Virginia · Member since 2019 · 79 posts · 33 votes3y
Hi, so from my interpretation it could just be the loan or the servicer that the lender uses that requires it to be at least 100k. I have seen this before because it does not make sense for them to lend under 100k due to the return they receive. The two options I see are to continue with the loan take the 100k use as much of the extra 60k for renovations and then use any extra for another downpayment, or once the renovations are complete refinance and roll the extra money into the new loan. The other option would be to find another lender that does not have the minimum, or use hard money.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
What is your question? There are loans that allow you to borrow the purchase and rehab. Look into hard money.
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes3y
@Jarret Durst Like @Eliott Elias said what specifically is your question?
I'll do my best to answer what I think you need to know. If you buy an house that needs substatial repair you need to get a loan specifically designed for renovations. Standard mortages are not available for properties that need work. The "At leaset $100k" part is probably because that is the minimum construction loan this lender will make. However it could mean that the lender is telling you to be prepared to spend that much in construction costs. Many people underestimate what it will take to renovate a propoerty.
- Member since 2023 · 6 posts · 3 votes3y
Quote from @Jarret Durst:
Hello BP people. I’m going under contract for a house for 40k. This is great, but I’m running into some issues. My original lender said I have to spend at least 100k for a renovation loan (mortgage+renovation costs). Then other lenders are telling me there is no such thing. So, I’m lost, what would be the best approach for me? The house is estimated at $170k.
thanks y’allJust change the lender to more flexible one (like me;))
- Lender · 92703 · Member since 2022 · 326 posts · 538 votes3y
Hi Jarret,
Maybe look into 203k Loan this loan allows to renovate the property but only if it will be your primary. If this deal is not your primary residence then dont even consider this loan. This loan allows you to purchase the home and add renovation cost. You will also have to appraisals one for current condition and one for after repair. Great Product for primary looking to renovate.
- New to Real Estate · WV · Member since 2023 · 55 posts · 30 votes3y
Quote from @Mark Munson:
Most hard money lenders will look for a total loan amount of at least $75k. They also tend not to like when a rehab budget exceeds a purchase price. What is the renovation budget you are requesting?
I haven’t received an estimate yet. My guess is between 20k & 30k
- New to Real Estate · WV · Member since 2023 · 55 posts · 30 votes3yYeah, I’m trying to make this an investment property. I’d really like to not wait a year if I don’t have to.
Quote from @Carlos Valencia:
Hi Jarret,
Maybe look into 203k Loan this loan allows to renovate the property but only if it will be your primary. If this deal is not your primary residence then dont even consider this loan. This loan allows you to purchase the home and add renovation cost. You will also have to appraisals one for current condition and one for after repair. Great Product for primary looking to renovate.
- New to Real Estate · WV · Member since 2023 · 55 posts · 30 votes3y
Quote from @Ned Carey:
@Jarret Durst Like @Eliott Elias said what specifically is your question?
I'll do my best to answer what I think you need to know. If you buy an house that needs substatial repair you need to get a loan specifically designed for renovations. Standard mortages are not available for properties that need work. The "At leaset $100k" part is probably because that is the minimum construction loan this lender will make. However it could mean that the lender is telling you to be prepared to spend that much in construction costs. Many people underestimate what it will take to renovate a propoerty.
It’s a livable property, but just has some superficial things that need fixed so it’s more appealing to renters. My idea is something like the Fannie Mae Homestyle loan where the mortgage & renovation costs are wrapped into one loan.
- New to Real Estate · WV · Member since 2023 · 55 posts · 30 votes3y
Quote from @Eliott Elias:
What is your question? There are loans that allow you to borrow the purchase and rehab. Look into hard money.
Okay, I’ll look into that.
- New to Real Estate · WV · Member since 2023 · 55 posts · 30 votes3y
Quote from @Kyle Tusing:
Hi, so from my interpretation it could just be the loan or the servicer that the lender uses that requires it to be at least 100k. I have seen this before because it does not make sense for them to lend under 100k due to the return they receive. The two options I see are to continue with the loan take the 100k use as much of the extra 60k for renovations and then use any extra for another downpayment, or once the renovations are complete refinance and roll the extra money into the new loan. The other option would be to find another lender that does not have the minimum, or use hard money.
Wait, you can use any excess money in a loan to purchase another property?
- 3yMark MunsonBusiness MemberLender · Orlando, FL · Member since 2022 · 440 posts · 300 votesYou need a hard money lender that lends as low as $50k, that will solve the issue. You can't just increase the budget to make it work, just like someone above mentioned. They don't just hand you the rehab money upfront, it is on a draw/reimbursement system. They will also need a scope of work to determine what the rehab plan is. There are some hard money lenders that go that low, but the origination fees and interest rates will be high. They will be more private money, as opposed to institutional hard money that you see advertised here most often. I hope that helps a bit to narrow your search.
Quote from @Jarret Durst:
Quote from @Mark Munson:
Most hard money lenders will look for a total loan amount of at least $75k. They also tend not to like when a rehab budget exceeds a purchase price. What is the renovation budget you are requesting?
I haven’t received an estimate yet. My guess is between 20k & 30k
- New to Real Estate · WV · Member since 2023 · 55 posts · 30 votes3y
Quote from @Mark Munson:
Most hard money lenders will look for a total loan amount of at least $75k. They also tend not to like when a rehab budget exceeds a purchase price. What is the renovation budget you are requesting?
I’m thinking between 20k-30k
- 3yMark MunsonBusiness MemberLender · Orlando, FL · Member since 2022 · 440 posts · 300 votes
Quote from @Jarret Durst:
Quote from @Kyle Tusing:
Hi, so from my interpretation it could just be the loan or the servicer that the lender uses that requires it to be at least 100k. I have seen this before because it does not make sense for them to lend under 100k due to the return they receive. The two options I see are to continue with the loan take the 100k use as much of the extra 60k for renovations and then use any extra for another downpayment, or once the renovations are complete refinance and roll the extra money into the new loan. The other option would be to find another lender that does not have the minimum, or use hard money.
Wait, you can use any excess money in a loan to purchase another property?
No, that is incorrect. No reputable or knowledgable hard money lender will just give you the rehab funds and certainly not extra money. They'll go bankrupt quick with that model. You could just walk away from any project making money without lifting a finger if they did.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Jarret Durst:
Hello BP people. I’m going under contract for a house for 40k. This is great, but I’m running into some issues. My original lender said I have to spend at least 100k for a renovation loan (mortgage+renovation costs). Then other lenders are telling me there is no such thing. So, I’m lost, what would be the best approach for me? The house is estimated at $170k.
thanks y’allI would say the house is 150k. Rehab cost is 100k ?
If I were you, I would run away from this house. Reward/risk is the lowest for this house. - Member since 2023 · 6 posts · 3 votes3y
Quote from @Carlos Ptriawan:
Quote from @Jarret Durst:
Hello BP people. I’m going under contract for a house for 40k. This is great, but I’m running into some issues. My original lender said I have to spend at least 100k for a renovation loan (mortgage+renovation costs). Then other lenders are telling me there is no such thing. So, I’m lost, what would be the best approach for me? The house is estimated at $170k.
thanks y’allI would say the house is 150k. Rehab cost is 100k ?
If I were you, I would run away from this house. Reward/risk is the lowest for this house.vote for it!
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Kirill Gerts:
Quote from @Carlos Ptriawan:
Quote from @Jarret Durst:
Hello BP people. I’m going under contract for a house for 40k. This is great, but I’m running into some issues. My original lender said I have to spend at least 100k for a renovation loan (mortgage+renovation costs). Then other lenders are telling me there is no such thing. So, I’m lost, what would be the best approach for me? The house is estimated at $170k.
thanks y’allI would say the house is 150k. Rehab cost is 100k ?
If I were you, I would run away from this house. Reward/risk is the lowest for this house.vote for it!
Sorry to say but this is typical scenario for foreclosure in the next 2 years lol ,if I were the lender I would not even look at the file.
- 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
I'm totally lost on what the purchase price and rehab are here =)
can you clarify? purchase is X and rehab is Y for total of Z?
and, if it "just has some superficial things that need fixed" w,hy would you even need a substantial rehab budget?
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Nicholas L.:
I'm totally lost on what the purchase price and rehab are here =)
can you clarify? purchase is X and rehab is Y for total of Z?
and, if it "just has some superficial things that need fixed" w,hy would you even need a substantial rehab budget?
If I could guess, this is a typical dilapidated house in midwest like in MI. Purchase for $30-$50k and rehab budget is 80k-100k. Even if you can sell , the max you could sell is $130-$150k. Usually investor is overestimating their home value. So budget ratio to purchase is like 2:1 , big no no to me. I could even check your market statistic if the house is sell-able.
Don't get me wrong, I would purchase house that the rehab budget is 100k and over, but only if I can purchase the house is at 800k range.
With 2:1 rehab ratio I would rather put the money into a almost-riskless 5% CD.
- New to Real Estate · WV · Member since 2023 · 55 posts · 30 votes3y
Quote from @Nicholas L.:
I'm totally lost on what the purchase price and rehab are here =)
can you clarify? purchase is X and rehab is Y for total of Z?
and, if it "just has some superficial things that need fixed" w,hy would you even need a substantial rehab budget?
That’s the problem, I don’t think I will. I’m buying the gas for 40k but I doubt the renovation costs will even come close to 100k which most lenders won’t work with a loan under that.
- New to Real Estate · WV · Member since 2023 · 55 posts · 30 votes3y
Quote from @Carlos Ptriawan:
Quote from @Nicholas L.:
I'm totally lost on what the purchase price and rehab are here =)
can you clarify? purchase is X and rehab is Y for total of Z?
and, if it "just has some superficial things that need fixed" w,hy would you even need a substantial rehab budget?
If I could guess, this is a typical dilapidated house in midwest like in MI. Purchase for $30-$50k and rehab budget is 80k-100k. Even if you can sell , the max you could sell is $130-$150k. Usually investor is overestimating their home value. So budget ratio to purchase is like 2:1 , big no no to me. I could even check your market statistic if the house is sell-able.
Don't get me wrong, I would purchase house that the rehab budget is 100k and over, but only if I can purchase the house is at 800k range.
With 2:1 rehab ratio I would rather put the money into a almost-riskless 5% CD.
Lol, an 800k house in my area is basically a mansion. 150k is a fairly nice house around where I live. Just to give you an idea, my parents maybe made a combined 200k when I was growing up and I got called rich, which we wasn’t.
- New to Real Estate · WV · Member since 2023 · 55 posts · 30 votes3y
Quote from @Carlos Ptriawan:
Quote from @Nicholas L.:
I'm totally lost on what the purchase price and rehab are here =)
can you clarify? purchase is X and rehab is Y for total of Z?
and, if it "just has some superficial things that need fixed" w,hy would you even need a substantial rehab budget?
If I could guess, this is a typical dilapidated house in midwest like in MI. Purchase for $30-$50k and rehab budget is 80k-100k. Even if you can sell , the max you could sell is $130-$150k. Usually investor is overestimating their home value. So budget ratio to purchase is like 2:1 , big no no to me. I could even check your market statistic if the house is sell-able.
Don't get me wrong, I would purchase house that the rehab budget is 100k and over, but only if I can purchase the house is at 800k range.
With 2:1 rehab ratio I would rather put the money into a almost-riskless 5% CD.
Also, the house isn’t really all that dilapidated. The lady just lives in Texas and doesn’t want to deal with it.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Jarret Durst:
Quote from @Carlos Ptriawan:
Quote from @Nicholas L.:
I'm totally lost on what the purchase price and rehab are here =)
can you clarify? purchase is X and rehab is Y for total of Z?
and, if it "just has some superficial things that need fixed" w,hy would you even need a substantial rehab budget?
If I could guess, this is a typical dilapidated house in midwest like in MI. Purchase for $30-$50k and rehab budget is 80k-100k. Even if you can sell , the max you could sell is $130-$150k. Usually investor is overestimating their home value. So budget ratio to purchase is like 2:1 , big no no to me. I could even check your market statistic if the house is sell-able.
Don't get me wrong, I would purchase house that the rehab budget is 100k and over, but only if I can purchase the house is at 800k range.
With 2:1 rehab ratio I would rather put the money into a almost-riskless 5% CD.
Also, the house isn’t really all that dilapidated. The lady just lives in Texas and doesn’t want to deal with it.
lol, what it says is that either the house is 200k, 400k, or 800k ; the rehab cost is pretty much the same. I do bath remodeling for 3k now, labour only. Re-roof of 8k ; flooring 4-5k.
When my typical midwest PM charges me for renovation project, I don't see much difference in term of cost.
- 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
well, how much money do you have?
if you could figure out the purchase, you could put the rehab on a 0% credit card, and pay it off when you refinance.
but you'd also need to be sure you could refinance.
is the ARV really 170K? I'm skeptical =)
- New to Real Estate · WV · Member since 2023 · 55 posts · 30 votes3y
Quote from @Carlos Ptriawan:
Quote from @Jarret Durst:
Quote from @Carlos Ptriawan:
Quote from @Nicholas L.:
I'm totally lost on what the purchase price and rehab are here =)
can you clarify? purchase is X and rehab is Y for total of Z?
and, if it "just has some superficial things that need fixed" w,hy would you even need a substantial rehab budget?
If I could guess, this is a typical dilapidated house in midwest like in MI. Purchase for $30-$50k and rehab budget is 80k-100k. Even if you can sell , the max you could sell is $130-$150k. Usually investor is overestimating their home value. So budget ratio to purchase is like 2:1 , big no no to me. I could even check your market statistic if the house is sell-able.
Don't get me wrong, I would purchase house that the rehab budget is 100k and over, but only if I can purchase the house is at 800k range.
With 2:1 rehab ratio I would rather put the money into a almost-riskless 5% CD.
Also, the house isn’t really all that dilapidated. The lady just lives in Texas and doesn’t want to deal with it.
lol, what it says is that either the house is 200k, 400k, or 800k ; the rehab cost is pretty much the same. I do bath remodeling for 3k now, labour only. Re-roof of 8k ; flooring 4-5k.
When my typical midwest PM charges me for renovation project, I don't see much difference in term of cost.
Oooh, I see what you are saying now, my bad.
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