Borrow less than approved and take difference to reno house?

Question

Hi everyone,

My question is exactly as the title suggests.

Is it possible to get a loan from a bank and 1. buy an off-market home for less than we're approved and 2. take the difference and immediately start a renovation on that house before moving in?

Example: Bank approves for 495k. I buy off market home for 410k. Use 70-85k to renovate said home. [then] Pay back 495k to bank in normal mortgage fashion.

We have a very good off-market deal within our grasp, that's not possible as a brrr or fix and flip, but it would make a perfect main residence, which we are also currently looking for.

Is the above possible? If not like this.. then how?

Chris Seveney · Answer

Banks will lend the lower of a percentage of the appraised value or what you qualify. So in your example, it does not matter what you are approved for. If you are buying it for $410k they will give you a loan for the value of the home minus their required down payment. This is for conventional loans. If you wanted to do a construction to perm or another type of loan, you potentially could do that but typically you will need to have plans done, and estimates from contractors etc. so its a lot of work to get that done.

Joshua Larivaux · Answer

Thank you for that idea. I will look into construction to perm loans. Are they available at regular mortgage companies?

Joshua Larivaux · Answer

Hey! The numbers don't add up to be a brrr. The purchase price is too high. It's a coworker of mine that wants to offload an inherited house, but doesn't have the energy or the desire to update it first. She barely wants to clean it to sell. But the area of the house is very desired, so she wants to get close to what the area is worth, just enough for me to do some reno on my own if i were to buy, but not to f&f or brrr.

Joshua Larivaux · Answer

I haven't really, no. I will do so. thank you.

Mike Klarman · Answer

Banks lend on the lessor of appraised value and purchase price.

Rodney Sums · Answer

Just to clarify and understand:

How far under market value are you getting it?  Why are they selling it that cheap?

Why can't you BRRRR or Flip it?

Is this not intended to be an investment property rather, something you want to buy at a discount and customize for yourself?

Possible choices that come to mind are  a loan that allows more than the contract price for renovations as @Kevin Woodard mentioned, hard money, or possibly buy and refinance later if it appraises for more than your purchase price enough.

Kevin Woodard · Answer

I am not familiar with any lender that will lend anymore money than the lower of appraised or purchase price. Have you looked at the FHA renovation loan?

Borrow less than approved and take difference to reno house?

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