Paying for Renovations

[TheFrenchCat]

My husband and I are looking to purchase our first home, and the one we want needs a good bit of work.  It needs a new roof and the basement needs waterproofing.  We think these will cost about 27k max, though we're getting estimates soon.  The listing price is 170k, we plan to put 20% down, or 34k and estimate the closing costs will be around 6k.  We have nearly 100k in assets, about 70% of which is in mutual funds that have performed very well (I don't have exact percentages now, but I remember it being good when I did calculate it.) 

My question is, does it make more sense to get a mortgage that combines the price and the renovation costs or should we just pay the renovation costs upfront and only have 33k left?

Thanks for your advice!

[Papa bear]

Awesome that you’re looking at a place.  With current rates on mortgages, I’m all for borrowing as much as possible.

Or get some 0% CC deals for 12-15 months for the renovations.

Now. Wtf do you 27k budgeted for a roof and basement for?  This is a 170k house.  You should really really shop around some more. Especially on the basement waterproofing side, a lot of waterproofing starts by looking up.  Gutters, downspouts, grading, etc.

Because 27k is a shit ton of money for this. 


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[TheFrenchCat]

Thanks for your reply.  The 20k for the basement is most likely an overestimate, but we like to prepare for the worst case scenario until we know more.  As for why we'd spend that much, we're very attached to this specific neighborhood, and there's only one other house for sale there, and it's 330k and huge.  We don't want to spend that much, nor do we need that much house.  Our other option is to keep renting at 650, since we already live in this neighborhood.  But even with the renovations, we're getting a good deal, I think.  The house is on a lake and recently an 800 sq ft house sold for 260k.  This house is 1200 sq ft and only slightly worse condition. 

[Jon Bon]

Ill take the other side.

Obviously get a 20% down mortgage, but in terms of borrowing for the work hold the phone. This feels more of a DIY question rather then a finance case study IMO.

First I hope your getting a MASSIVE discount for a house that needs a new roof and basement waterproof. I mean is this house actively leaking out the top and the bottom? Secondly, how old is this house? How long has the basement "needed" waterproofing. Most basements leak a little BTW. Concrete is not waterproof so in a heavy rain you might have moist walls, it is kind of how it works. Age of the house might change the answer.

That being said 90% of wet basement problems are actually drainage problems. How are your gutters and downspouts, do you see your drains all the way to daylight? Do you have backups anywhere? How is your grading? Correctly away from the house is the only answer. If not FIX THAT FIRST. Cost should be nearly nothing compared to 30k in waterproofing.

You are a first time home buyer, its gonna be fine. But my advice would be relax and dont embark on 30k worth of repairs right off the bat. Take your time and see if some of this can be improved with the steps I mentioned above. The roof is more binary it needs to be replaced or it does not 1 or 0.

Good luck!

 

[affordablehousing]

Totally agree with Jon Bon. the house has existed for some time, so if the actual effects of the issues are minor, just caulk the leaks, and see how much the basement really leaks before you move forward with repairs.

Case in point, we had a leaking overhang on a garage extension. The inspector showed me how it was deteriorating the rim joist of the second floor. It could have led to immediately redoing the 3' extension and garage door at a $15K cost, or, I just screwed in some flashing above the extension and caulked it with a good elastomeric and it has remained dry. It isn't the most elegant fix, but it let's us decide how much we need to spend on different other projects.