All Forum Posts by: Matt Turbitt

I would say those are high when considering the $5400 in closing costs + .5%. Have you talked to Union Savings on 161? I'd imagine they would beat this offer easily. 

so some things to know about mold is that you are allowed to address mold in a home up to 10 sqft. Over that means remediation. Correct remediation is done by hazmat suits, coating all the surfaces in a solution, cutting it all out, each section goes in a bag is sealed and then goes into a second bag then require special dumping. And now it has to be disclosed when you go to sell otherwise you can be found liable for someone's future breathing issues or allergic reactions. It all gets very expensive very fast.

go to the basement and tape a 2'x2' square of plastic to the floor, taping all 4 sides to create a seal.  Then do this on a wall as well. Wait 1-2 weeks and take a look. If condensation has built up under the plastic your basement is not currently sealed and you'll have moisture problems you'll want to address (tiles, vapor barriers,sumps). If condensation builds up outside the plastic you have an existing moisture problem in the basement and the air in it (dehumidifiers).

No matter what you do in the basement you'll want to address the gutters and the grade. I'd add gutters and run drain lines through the yard, they need to go a minimum 10' from the house to be effective. Then I'd re-grade the area around the house. Fill dirt is cheap and easy enough. 

Talk to a realtor to see if your area can support the finished basement. Many times on let's say a 100k house a 10k basement remodel won't recoup that from the appraisal and sometimes not even from the buyers.

the above is a great answer, to add to it the one other option you have is a bridge loan. Basically 1 loan with 2 houses in it. You'll need to reach 20% equity across the 2 combined homes which allows you to essentially move equity from one home to the other in one transaction rather then 2 (refinance, purchase). This also works when you want to buy a new house, move into it, then sell your old house.

So the reason I ask about the purpose of going FHA is that you will get a far better deal by going conventional. Most banks offer 5,10, and 15% down products along with the usual 20% down. Anything under 20% will still carry PMI but there are 3 big differences between FHA and conventional loans when it comes to PMI. Lets assume a loan of 5% down via FHA and 5% down with conventional.

1. with FHA you are going to end up paying up front PMI at closing which will be 1.8xx% of the loan amount or roughly $3,300! in your case. then you will still have monthly PMI. There is no upfront PMI on the conventional side.

2. monthly PMI on conventional loans are normally slightly cheaper then the PMI of FHA loans.

3. PMI does not drop off of FHA loans until you refinance AND have 20% or more equity, meaning if you get to the point where you've paid off 70% of the loan FHA does not care you will continue to pay that same PMI until you refinance out of it. With a conventional loan the PMI will automatically fall off once you reach between 18-20% equity in the property.

Side note, if you can afford 10% down that is often a good way to go because you'll fall into a cheaper PMI rate bracket vs putting 5-9% down. Though, you may decide that extra 10k is better suited on rehab which is understandable.

The principle reason to ever go FHA is if you can't go conventional due to DTI or low credit or you live in a wild area where the difference between 3.5% down and 5% down is 7k...

To touch on your questions FHA loans are specifically designed for owner occupants and the rules state FHA will not back one purchased for investment purposes. You are limited to 1 per person. there are exceptions that allow for 2 but they are rare and few and require special permissions.

you could in theory be a cosigner for him but the cosigner rules state you cannot have an interest in the property. So a bank may let it slide but technically if you 2 are investing together on a property, you have an interest in the property. Also most underwriters are not going to let a non family member be the cosigner.

As for a 'gift' you could give in 10k lets say and let it season in has bank account for 2 months then buy a place that would be fine but in this case you don't have 2 months. if you gave it to him for this house you'd have to sign a letter stating it's a gift and will not be repaid in any way. Which obviously, you expect a return from your 10k 'investment' so that's illegal and an underwriter will probably sniff that out as most friends don't give other friends a 10k gift...

like the previous person said the best option really is interest only payments for 12-16 months and then a balloon payment of the 25k. This keeps everyone honest, you remember it's not your money, and he gets steady payments that tell him you haven't forgotten about him. To answer your questions....

1. Option 2 is reasonable, 1 is fine too, 3 is bad. You don't know if he wants to be tied to the situation for up to 10 years, most wouldn't want in that long. Also for option 1 or 2 you are in the right Wheel house. You'd want to offer 7-12%. Shoot ask them what they are getting now else where. Your goal would be to beat their stock portfolio  (4-6% normally)

2. You be looking at just 8%/12 (.6667%) x the balance each month, the interest would compound so at the end of 12 months you'd owe about 27100~.

3. Interest only loans are like #2 except your making that payment each month. So it's still 8%/12 x 25000 = $167/money. Technically when you do this through a bank it will be based on average daily Balance so it can fluctuate a few dollars but that's irrelevant in this case. None of this changes if you take it out 14 or 24 etc months. It's still $167/mo and it's still the interest rate divided by 12.

4. Should you decide to go this route you'd just run a 10 year mortgage calculator on 6% and 25k. Then add 25% of the actual cash flow and be done with that. So it would be like $278 plus 25% of the final cash flow/mo.

Hope this all helps and good luck!

Most importantly, why do you feel you need to go fha? Does one of you have credit issues or dti issues? Can you afford 5% down? How do you plan to finance the rehab?

Also, just to confirm, your aware if you fha you have to live in it for a year right? You also can't gift him money to close (assuming he doesn't have that) as it won't have time to season. I'm also pretty sure you can't assist his fha either. Also you can only have 1 fha at a time but after you fix it up you can always refinance out of the fha loan and get another fha loan on another property. 

You are looking for a commercial loan as that will circumvent dti and is based on the property not you. Downsides are higher interest rates and you will not get any pmi back. You only get pmi back if you go from an fha to an fha. You'd still have to wait 6 months and the numbers probably wouldn't work out to remove your pmi. 

Figure 2% as a rough estimate. I've seen people pay 4% and I've seen $500 on a 100k so it's all over the place.

Unless you have your llc taxed as a s or c Corp it's the same as you in the eyes of the irs. Is this your job or something extra? It's not gift or estate tax and it's active not passive so it's just additional income in your bracket I believe.

1. Holding it for a year allows for long term capital gains vs short term if it's under a year. Either way you still pay. Only way around this is living in it for 2 of the last 5 years or a 1031 exchange but that only delays it, not prevent it.

2. Yes you'll pay on this, like others said you'll also pay on the recapture of depreciation regardless of if you depreciated the house each year.