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Old 11-14-2010, 11:58 AM
 
470 posts, read 1,002,322 times
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I am about to get a mortgage and the last time I saw what was out there was 2006. Sold my home 2 months ago and am now renting.

I found a home that is within my price range but had a couple of questions. I am targeting an area that has older homes that need updating. I would like to buy a home and immediately renovate an area of the home. Can I just get a mortgage for a little more than what I buying the home for?

Sorry for the dumb questions but I thought I would ask. thanks!
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Old 11-14-2010, 02:25 PM
 
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Banks have options for that but these days virtually all are unwilling to lend too close to the value of the home since you then lack any incentive to keep it if it loses any value. If the home is say 200k but you need 220k to buy it, no bank in their right mind will lend above the price unless they appraise it far higher (very unlikely in this economy). Even if its just a few grand, what happens if you tear out a wall and find out 1/2 of the house is covered in asbestos and the other half toxic mold? If you don't have a dime of equity in the place, you'd be well advised to walk away from that kind of a money pit.

I don't think its a good idea if you have to borrow more than the home is worth to buy it and update it. It adds complexity to the deal which means higher interest and if you aren't savvy enough to know what loans are available for renovations, then you honestly shouldn't be attempting it in this economy. You should instead look for homes that were already updated and simplify the deal. There isn't a lack of inventory these days so why buy a fixer upper especially if you are lacking the funds to fix it.
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Old 11-14-2010, 03:46 PM
 
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What do people do then with foreclosures when properties are sitting and need work? Seems like people are snatching up foreclosures all over the place.
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Old 11-14-2010, 06:21 PM
 
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Quote:
Originally Posted by blakeas View Post
What do people do then with foreclosures when properties are sitting and need work? Seems like people are snatching up foreclosures all over the place.
Cash. If you need to move quickly, cash or pre-arranged financing (investment pools, etc) are the only way you can pull off buying a foreclosure quickly. Sure you can buy a foreclosure for cheap and finance it but it can be tricky and there's no way they'll lend you above the asking price just b/c you want to fix it up. The bank will still need a down payment and if its a fixer upper, you need a substantial down since FHA won't lend on anything out of spec.

Those people buying up fixer upper properties are well financed and not needing loans. One of my brother's clients has ~400 properties around Atlanta and the vast majority of them are cash flowing so he can buy up 50-100k houses quickly and efficiently. He sizes up a house and signs all his docs that day to snap up anything he can turn a profit on. If you have to go through an underwriting process, you're not going to get an amazing deal that's well below market prices and you're certainly not going to get a mortgage that's more than the house is worth. It's how the house wound up on the foreclosure market in the first place.

If you don't have the money to buy the place cash, don't try to get into the fixer upper market. If you lack experience and plenty of emergency cash, the house will wind up back on the market and you'll wind up poorer.
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Old 11-15-2010, 06:58 AM
 
Location: Atlanta, GA
1,123 posts, read 5,630,619 times
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Perhaps I am overly conservative fiscally, but I work on a cash only basis when it comes to renovations. We bought a fixer upper about 3.5 years ago and I just don't like the risk of having too much debt on my balance sheet. I just do my reno's here or there when I get a decent chunk of money in my surplus fund (aka, where I dump whatever's left after bills, savings, kid's college fund, etc). I would be really wary of taking on a larger than necessary mortgage right now...a lot of signs are pointing towards a prolonged decrease in values.
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Old 11-15-2010, 05:36 PM
 
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It depends on your down payment and your good credit, if you do 5%, then you can do FHA. If you do 10% down payment, you can get a standard conventional mortgage. All the exotic loans are gone as far as I know, so if you have more money than what I mentioned above in reserve, use it for upgrades in the house.

I doubt you can put repairs in your loan unless you get a house severely discounted by a motivated seller. Talk to your real estate agent, he or she can tell you more than I know.

Personally, I would avoid foreclosure unless you have time and patience on your side, they are hard to buy with loans. Cash is King right now in real estate.
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