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There is a program on HGTV called "Hidden Potential" where they take a couple with a budget of x to see some serious fixer-uppers, below their target price. Then, they bring in an architect who shows them on his computer how they can remodel/renovate the house, and still come in below their target price.
My question is this: I thought that if you got a mortgage, it would pay for the cost of the house. Only the cost of the house. But on this show, they act as if the people can take a loan for x amt. of dollars, and use the $ to buy the house PLUS do the renovations necessary. Is that possible?
For ex) couple A is approved for $500k. They find a house for $350k that needs work. As the lady on tv says, "That gives you $150k to play with!" What??? I figure the bank will give them the $350k to buy the house. Where do they come up with that $150k? Even if they do (and prob. don't) have 20% down, which would be $100k, they're still short $50k. Am I missing something?
basically what it is, you purchase a house for $350k when you close you would obtain a loan that allowed you to do construction to the home. If you approved for $500k you could remodel the house up to close that. At close you would get the extra money to use towards the improvements. The improvements would in-turn re-appraise the house at a higher value, but you cant go over the loan amount that you can afford to pay back.
To make numbers easy: You buy at $350k, add $100k in improvements, get a loan for $450k home is re-appraised at $500k
I haven't done one of these loans in years, but when we did...different banks had different approval processes.
Bank had to approve the licensed contractor. (They had to supply tax returns, licenses, etc)
Contractor had to supply list of sub-contractors (usually).
Property appraised as-is and appraised with improvements completed.
Improvements had to be done in a timely fashion.
Usually multiple inspections during construction.
Some banks were very strict to the T, which suspect today most would be. Some were very loose(didnt require a lot of info on the builder or just a copy of his license, etc).
Also with these, some banks allowed you to close with a conventional loan while others required or specialized in construction to perm loans.
There is a lot of paperwork/work involved in these types of loans.
basically what it is, you purchase a house for $350k when you close you would obtain a loan that allowed you to do construction to the home. If you approved for $500k you could remodel the house up to close that. At close you would get the extra money to use towards the improvements. The improvements would in-turn re-appraise the house at a higher value, but you cant go over the loan amount that you can afford to pay back.
To make numbers easy: You buy at $350k, add $100k in improvements, get a loan for $450k home is re-appraised at $500k
I haven't done one of these loans in years, but when we did...different banks had different approval processes.
Bank had to approve the licensed contractor. (They had to supply tax returns, licenses, etc)
Contractor had to supply list of sub-contractors (usually).
Property appraised as-is and appraised with improvements completed.
Improvements had to be done in a timely fashion.
Usually multiple inspections during construction.
Some banks were very strict to the T, which suspect today most would be. Some were very loose(didnt require a lot of info on the builder or just a copy of his license, etc).
Also with these, some banks allowed you to close with a conventional loan while others required or specialized in construction to perm loans.
There is a lot of paperwork/work involved in these types of loans.
So if I understand you correctly, 1st you find a house that is way under your budget, but you need to work on. Then you find contractors etc and get estimates for the work, then you go back to the bank and say, "I want to buy this house for $350k but it needs $100k in work, so I need a loan amount of $450k", and then the bank either approves the loan amount for what you need, or doesn't?
I think with todays banking troubles you would have a hard time getting the extra money for "improvements". I am by no means an expert but it doesn't make sense for a bank to do that especially when home values are falling each day.
As far as the show I think it is really dumb because most people either can't or won't qualify. It's another la,la show and completely useless, JMO.
I think with todays banking troubles you would have a hard time getting the extra money for "improvements". I am by no means an expert but it doesn't make sense for a bank to do that especially when home values are falling each day.
As far as the show I think it is really dumb because most people either can't or won't qualify. It's another la,la show and completely useless, JMO.
That's what I was thinking too, that banks in today's market won't be as likely to do that. But for some of these people, the problem is that they live in areas where the avg. home price is so high (like around NYC etc) that all they can afford (at $400k) is a total wreck. So, do they buy the wreck and work with it? Or have a longer commute/less yard etc.
The reason I'm curious about this is b/c I've been looking for homes online for a while, and I've noticed that there are a lot of older homes that are quite nice - nice curb appeal, much bigger yard than you get with newer construction. But the caveat is that most of them need some work - kitchen/bath remodel etc. So I was trying to see if this was a viable option or not really. ie) can I get a bigger loan for my mortgage and use it to remodel, or do I buy the same house, with a smaller mortgage loan, and then get a home improvement loan on top?
HGTV is becoming famous for that. If you want a really good laugh, watch "My house is worth what". They actually show people making money on home appreciation. Baawaa haaa waahhaha
HGTV is becoming famous for that. If you want a really good laugh, watch "My house is worth what". They actually show people making money on home appreciation. Baawaa haaa waahhaha
Yes, I've seen those, and I was thinking too that they were re-runs, since everyone on the shows is making a killing in their equity. HA! Even so, I still wonder if I can use a mortgage loan for renovations in the house I'm buying, or if that option doesn't exist nowadays, and you'd have to get a separate home improvement loan.
Yes, I've seen those, and I was thinking too that they were re-runs, since everyone on the shows is making a killing in their equity. HA! Even so, I still wonder if I can use a mortgage loan for renovations in the house I'm buying, or if that option doesn't exist nowadays, and you'd have to get a separate home improvement loan.
Depends on what the improvements are and how much you need. FHA has a rehab loan, the 203(k) option if the home needs minor repairs. Fannie Mae used to have a program too, but I haven't used it for a while.
If you are talking major repairs to structure or adding on rooms then the options are far tougher.
Many of these shows were funny but crazy even during the boom. Now they are funny but sad.
well i don't think the mainstream banks are offering this anymore. but the guidelines to do this still required full documentation years ago.
there are lenders who specialize in this type of financing and you make just have to go to a construction loan company.
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