I am dealing with a REO property. Appraisal is 150,000 but all of the comps sell for about 140,000 or less. The home needs 12,000 to 20,000 in rehab to get it back to life. I am preaproved for a loan but the down payment will clean out my cash I made an offer for 110,000 and I am sure they will counter. Okay, this is my question. With an apraisal of 150, it they will except 120, will they also except 140 with 20 back in cash for renovations. This is my first deal like this and I do plan on living in the house for a number of years.
Thanks for your help
You may want to look at a 203k loan that would let you get repair money. A traditional lender will never give cash back for repairs at close.
If you are confident comparable sales are really $140K or less, then the value is $140K or less, not $150K. If it needs $20K ($12-20 = 20 if not 25), then retail on the place is $120K or less.
If you were buying this as an investment that you wanted to rehab and resell, you wouldn't want to pay more than $78K. That's (70%*$140K)-$20K. Since you're planning to use it for your principal residence, you can pay somewhat more. But, why?
If you need fix-up money, you'll probably need a hard money lender. A conventional lender isn't going to give you any cash back. Do the hard money, fix it up and then refinance to more conventional terms.
Another option is to get a repair credit. Settle on a price, contingent on an inspection. The inspector finds the problems, and you get estimates and then get a credit for the estimates. So, if you agree on $110K w/10% down (plus another 3% or so for closing costs), you need to bring $14.3K to the table. If the repair credit is $20K, you'll get $5.7K back.
I think that's very unlikely with the bank, though, because they are probably selling it as-is.
A FHA 203k would allow you to fund the cost of purchase + rehab + 6 months of mortgage payments + soft costs as long as the sum total doesn't exceed the max. ARV allowance (98.15%).
FHA loans are traditionally not score driven, but the 203k program does require DU/DO approval.
I with Mike---based upon the limited info you have provided, the 203k could concievable allow you to achieve what you are seeking to do.
I have programs available which will allow you to borrow up to 125% for home improvements. You can close simmutaneously as long as it is owner occ.
Shoot me an email if you have any questions or interest.
You are close to over improving the property. When you add in all the closing costs and other things this is starting to sound like you are paying retail.
If the seller wants more than your initial offer you might just decline. Even if you can get the money to do the work it might not be worth the time and effort.
I understand that you want to live there for a while. Lets assume you get it, you get the money and when you are done you are into the property for something around what you expected.
If you then are forced to move (job relocation or otherwise) you could end up upside down.
Do expect that if you are forced to move you need to see if the property can be rented while you continue to hold on to it. What are the rents likely to be? I suspect they will come up short but I wanted to ask rather than just assume.
It really could be better to use this possible deal as a learning experience for how to get repair money but focus on a different deal with more of a margin.