Author Topic: Well, we just did something that...  (Read 4593 times)

kolorado

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Well, we just did something that...
« on: July 02, 2012, 01:24:28 PM »
is incredibly stupid or will turn out to be awesome. Maybe a bit of both. We put a low-ball offer on a house that needs fairly major work. Furnace is nearly 20 years old. The roof pitch is 2:12 which has cause some water damage and stress cracks upstairs. Carpeting hasn't been replaced since early 70's. 15 years or more of overgrowth outside on the .2 acre lot. Windows are original aluminum. Most bathroom fixtures original to 1955. Fence is falling over. An ac unit is mounted through the wall upstairs. Dryer is vented out a window.
Why did we put in an offer? DH and I grew up in historic houses. That's what feels like home to us. Finding one in a neighborhood that feels safe is a tricky thing out here. The historic districts also tend to be higher crime areas. The ones that feel safe are well beyond our budget(2.5X yearly income).
This house has 1500 square feet, 3 bedrooms and 2 bathrooms, with a one car garage. It's on a hill with a private yard and mountain views to the back and city views to the front. The neighborhood is great. Hardwood floors upstairs have always been covered by carpet and they are beautiful! Steel cabinet kitchen is adorable. The yard is completely landscaped with a watering system, just ridiculously overgrown.
I've been looking a couple hours a week for about 6 months but seriously with a realtor, about 14 hours or more a week, for the last 7 weeks. So far I've vetoed about 500 houses in the city that met our search criteria and have walked in to view 9 homes. We know the very top price we're willing to pay after estimating the cost of repairs and are perfectly willing to walk away if our offer is rejected.
The house has been on the market almost 4 months now and we offered about 1/3 of their original listing price just to test the waters.  Houses in the neighborhood are valued at $130-230K in very good condition depending on home size and lot size. Out top bid is 50% of very good market value due to my repair cost estimates.
Can I get some input on whether my internet research price ranges are good guesses?

Hire out:
Completely changing the roof pitch from 2:12 to 6:12 on a 22 X40 rectangle, no special roof features: $25-35 sq ft($25-30K)
Repair stress cracks: $5K
18 new windows and doors: $12K

We'll do:
landscaping restoration and fencing upgrades: $5K
old carpet removal and possible new flooring in finished basement: $3K
paint inside and out: $1500

Also, does anyone know how mortgage companies handle repairs of this kind? I seriously doubt the house could be insured until the roof is replaced and if that's the case will we not be able to get a mortgage on it? We can afford to put in a 20% down payment and cash flow all repairs with a nice buffer in case I underestimated. But we will need the mortgage. If I was an insurance company, I wouldn't sell a policy on it in its current condition. Just wondering if anyone has had a experience like this with a fixer-upper. I'm already frustrated with myself for loving a beater. :/

Shandi76

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Re: Well, we just did something that...
« Reply #1 on: July 02, 2012, 01:31:55 PM »
Congratulations on your purchase (assuming your offer is accepted) :-)

I  don't know what US law is like, but you wouldn't be able to get a residential mortgage for a property like that in the UK. Our lenders do offer different products though for renovation and new build projects. Maybe you will need to get an alternative kind of financing? Over here, they will give you the loan in installments based on project milestones, maybe in 3, 4, or 5 installments depending how much fixing up it needs. They release more money to you as you make it habitable and add value. You probably couldn't get insured to actually live in it until the roof is watertight.

arebelspy

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Re: Well, we just did something that...
« Reply #2 on: July 02, 2012, 01:50:47 PM »
Also, does anyone know how mortgage companies handle repairs of this kind? I seriously doubt the house could be insured until the roof is replaced and if that's the case will we not be able to get a mortgage on it? We can afford to put in a 20% down payment and cash flow all repairs with a nice buffer in case I underestimated. But we will need the mortgage. If I was an insurance company, I wouldn't sell a policy on it in its current condition. Just wondering if anyone has had a experience like this with a fixer-upper. I'm already frustrated with myself for loving a beater. :/

If it needs significant repairs, likely you won't get a traditional mortgage on it.  At best you may be able to get private money with significantly higher rates (we're talking at least 10, 12%).

The only loan type that will work for that from a traditional standpoint is an FHA 203(k) loan, which does loan on places needing repairs and includes money for repairs.  Look into that to see if you're eligible, otherwise you're probably out of luck.

Most places like that are bought with cash.

If you don't have cash for the whole purchase, which it sounds like you don't, you should get financing figured out and lined up before you start spending money on this place (on inspection and appraisals; the latter being unnecessary in a cash purchase, but most any lenders will want one), otherwise you're throwing that money away getting it inspected and appraised, then unable to finance and having to back out.
« Last Edit: July 02, 2012, 01:52:36 PM by arebelspy »
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gooki

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Re: Well, we just did something that...
« Reply #3 on: July 03, 2012, 01:16:13 AM »
In our country if you have 20% down or more the banks only look at the current value of the home per local government records. Insurance companies don't care either, they just want your money (although that has changed somewhat in my city due to earthquakes).

So yeah if they don't ask about the condition of the property I wouldn't tell them. If the roof is being done by a professional company see what their insurance covers.

tooqk4u22

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Re: Well, we just did something that...
« Reply #4 on: July 03, 2012, 09:29:10 AM »
If it can't get insured or there are structural issues you won't be able to get a mortgage. That said mortgage lenders even after all that went wrong are still not highly disciplined, but if any government backed loan (FHA) will definitely not get done.

arebelspy

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Re: Well, we just did something that...
« Reply #5 on: July 03, 2012, 11:15:14 AM »
In our country if you have 20% down or more the banks only look at the current value of the home per local government records. Insurance companies don't care either, they just want your money (although that has changed somewhat in my city due to earthquakes).


Hah.  Our government records are so out of whack here, that wouldn't work.  Banks always require an appraisal, and sometimes multiple.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

tooqk4u22

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Re: Well, we just did something that...
« Reply #6 on: July 03, 2012, 12:29:39 PM »
Hah.  Our government records are so out of whack here, that wouldn't work.  Banks always require an appraisal, and sometimes multiple.

Yup.  I moved last year and when the appraiser showed up, the previous homeowner had one of the toilets off to fix something (keep in mind that it is two bolts and about 30 seconds to put back) the appraiser noted it and in order to close the bank required that the appraiser go back and verify that it was in place (cost me another $150 - I was pissed). So major issues I think could have a hard time.

kolorado

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Re: Well, we just did something that...
« Reply #7 on: July 03, 2012, 01:35:43 PM »
Thanks for the input so far, it is helpful. Researching the 203K thing now. :)
To clear up a couple things, we have enough to buy the house outright if they accept our top bid but not enough to cash flow necessary repairs. It makes the most sense to me to get a mortgage with a low interest rate and use our cash to fix the place up. I suppose there are other options like a HELOC, right?
Our agent is sending me regular home listings and "distressed" home listings. Almost all the distressed homes clearly state that you need cash to purchase. This particular house came under the regular listings and at a regular market price without the "cash only" post script. That seems to suggest that the seller doesn't know the extent of the damage, or they're looking for a sucker or I'm overestimating the extent of the damage.
I can say I grew up kinda poor and I've been into a lot of rough homes in my life but I've never been in one before that had diagonal stress cracks above nearly every window in the upstairs. A quick Google search of low pitched roof damages led me right to pictures and descriptions identical to the ones I saw in that house. Apparently there was an ice dam at some point. It's completely fixable but costly, especially if we don't want that to happen again.
As far as livability for insurance purposes, I think the house is ok. The bathrooms and kitchen are all in good working order. Nothing is gutted or run down. Neglected, yes, run-down, no. The only electrical updates were done in the kitchen, laundry and ac unit socket. All other outlets are two-prong and ungrounded.
The realtor sent comps this morning. Looks like fixer-uppers go for $40-70 sq ft. We offered $30 to start, based on my research. Good houses are going in the $85-115 range. We won't be more than doubling the starting offer becasue I don't want to get in too deep and be unable to afford any surprises. I saw "Mr. Blandings Builds His Dream House"! ;)

kolorado

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Re: Well, we just did something that...
« Reply #8 on: July 03, 2012, 03:24:43 PM »
Research research research.
 A Streamline 203K might not be a terrible way to go but from what I'm reading, the process of qualifying and closing is excruciatingly slow. That led me to look at construction to mortgage loans, also an option, but potentially a hard sell. 
And finally, I drifted to my city website which gives out "affordable housing rehabilitation loans" to low income households.  They give special priority to owners in certain neighborhoods that have a higher amount of homes in need of updating. I checked their map and the house is in a targeted for improvements area. I'll be calling the Dept. of Housing Development this week to find out more about those but it seems likely we could get one.
Whichever way we go, we want to avoid as many inspections and as much paperwork as possible. We want it done right but want to do the simple stuff ourselves. From what I'm reading a 203K loan will require professional work for every improvement. A 203K Streamlined will allow less inspections and the option to do some of the easier work ourselves. I don't think a 203K won't allow for structural roof repairs though.
And it may be possible to get a conventional loan if I put down 20 or more %. That's their risk. I wouldn't if I were them though.
Once we get to the executable contract and dealing with a loan officer stage, I'm sure we will get more idea and options. Meanwhile I will keep reading and learning so I have a good idea of what they're talking about when that time comes. :)

gooki

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Re: Well, we just did something that...
« Reply #9 on: July 04, 2012, 04:30:05 PM »
One option my be to buy with cash, and tidy it up (enough so it doesn't look run down) and then seek a mortgage.