hello everyone, I am in a weird situation and would like some advice. I'm looking at a property that needs some work. My real estate agent spoke to a lender about this house and the lender said that if it's uninhabitable (which I don't think it is per the definition) or if the appraisal comes back lower than the asking price (asking price is half of the value of the home if it were fixed) that I would not be able to get a loan from a normal lender. Without the loan, I can't purchase the house (don't have that much cash). Has anyone gone through this situation before? Is going with a hard money lender my only option??
Hard money is expensive, but the question is always "is the profit still worth the risk and additional expense?", at least to me. Something in the human brain quails at terms like "12% interest", "one year term", etc when it comes to properties, and to an extent rightly so. But if I could hypothetically put in $30K of my own cash and hard money at 1 year, 12%, and 4 points and still make $25K in profit, I'd do that all day long. Some HMLs lend on the value of the property and some on the credit and finances of the borrower, as well, so it's good to have relationships with both if you go the hard money route.
If you were going to live in the property you could look into 203(k) financing, but that takes a while and doesn't sound relevant to your current situation since I assume you don't want to live in the property, etc. I may be mistaken though, so by all means check into it. Best of luck, and by all means let us know how it goes!
You will want to speak to a few lenders, in particular those that know their appraisers well.
@Zantiago Zurita You said that your realtor talked to "a" lender. Base your ultimate decision on your own research and don't rely on one person's opinion. This is your deal and there are tons of lenders out there. Talk to at least 5 lenders and/or mortgage brokers in your area. They should give you a good idea of what and how you can accomplish your goal. Good luck!
@Andreas Mirza Thank you for your advice. I will start researching with the lenders in my area.
@John D. Thanks. I'll do that.
@Chad Clanton thanks for your explanation. That helps.
I'll let you guys know how this goes. I hope I can purchase this property because I know it will cash flow...it just needs some elbow grease!!
@Zantiago Zurita Talk to small local banks and ask for the commercial lending department. I've done many deals like you're describing. You're correct - conventional lenders require the property to be "livable".
Shop around: some will provide both the purchase + rehab funds. However most will require 20-25% down, sometimes on just the purchase price, or sometimes on the total amount funded (again, shop again). Rates will be slightly higher and shorter term. Generally I'm paying around 5% on a 20 year term. You could always refinance after a year or two.
@Tom S. Thanks. I'm researching all available banks in my area and I'm going to be knocking on some doors in the next few days. Thanks for your advise (and giving me hope...hahahaha).
@Zantiago Zurita , if you are buying as owner occupant, apply for a 203K FHA construction loan. You'll be buying the property with 3.5% down for purchase price+ funds for construction loan.
If you are buying as investment, most local banks, small banks, with only one or several locations in your state would have construction loans for investors.
Most of the Realtors are not aware of these type of loans, as most of their clients are owner occupant buyers that are not looking to fix up homes.
Reach out yourself to the top 5 small banks in your area and you'll get the deal done!
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