UC, High Appraisal $$, How to finance necessary repairs.

[Ariel S.]

Hi Everyone! I am a first time investor and I am home hacking in Chattanooga, TN. Great location, bungalow style, single family home with free standing apartment. 

I am under contract- the main house was built in 1920, and was remodeled a few years ago so the interior, electric, and plumbing are new. Foundation is rock solid.  The exterior of both the house and the apartment have a lot of issues that I would like to repair before winter. An urgent item is the roof and guttering- the roof needs to be repaired soon, and when I do that I will need to put guttering on and replace decking, etc. Because the owners did not have guttering, there is rot all around the exterior. I am under contract for 210k after dropping the price for repairs from 225k. The appraisal came back in my favor at 234k. 

Ideally, I would amortize the major repairs to the house over time included in my 30 year fixed. That would be the easiest to manage- I know there are some options to do this, including existing structure updates and potential repair escrows, and a line item at closing to allow for a single contractor to make repairs. I also understand that these aren't approved often. 

I go into underwriting tomorrow as a first time home buyer and need to make a decision either to risk the underwriting process by trying to get the repairs funds from my 30 year conventional or wait for closing and get a HELOC/fixed 2nd to get money for the repairs. The advantage to doing the HELOC/fixed 2nd would be that I could get money at my discretion to make the repairs after closing and potentially have enough to put in to other updates that I wouldn't otherwise have the flexibility on. I don't think the seller is in a position to make the repairs. Can someone help me with the pro's/cons of all options, or suggest another solution if you have an idea? Thanks so much for all the support!

[Bryan Smith]

If you tried to get the money for the repairs directly from the first mortgage, the rules are strict.  But they are also straight forward.  I had a deal similar to this fall through earlier this year.  But I didn't have a problem from the lender.

The lender did insist on estimates for all work from 2 different general contractors before closing though.  That turned out to be a good bit of work for me.

I don't see any disadvantage to a 2nd/HELOC other than the risk that it might fall through. Then you'd have the house and not the money for repairs.