Buying abandoned new construction (documents, appraisal, mortgage, mortgages)

[slvt540]

Just want to get some perspectives:

We are considering buying an abandoned new construction house. It is completed through the drywall stage. According to tax records, it's appraised value was 600k a year ago. It's currently listed for $400K and probably needs about $200k to finish off. If properly completed, value should be around $750K-800K. We can occupy it ourselves or rent it out.

Our issue is financing. We can / are willing to bring the cash to finish off the house. I am self-employed (meaning erratic income pattern) but with good credit score (720+). Our questions:

1) Is it relatively 'easy' to get a lender to provide the $400k needed to purchase the abandoned property (assuming updated appraisal confirms current value)?

2) What type loan program (construction loan, home improvement loan, etc.)?

3) Any special requirements?


Thanks in Advance

[chet everett]

As soon as I read the "abandoned new construction" line I knew this was going to be a finance question!

Same thing has hit a few potential buyers that I have tried to help. If they can access "alternative finances" that is far and away the best way to tackle this. What sorts of "alternatives"? Well, everything from the kinds stupid (borrowing money from an already wobbly IRA) to the financially easy / emotionally difficult task of hitting up family.

Lenders HATE these kind of deals. It is NOT really a construction loan, as they cannot have the say so over disbursments according to a completion schedule that they do with new construction, and the local authorities MAY need to have some "de-construction" done to verify that all the prior work was done to permitted standards / properly approved.

Similarly this is NOT a regular old mortgage situation where you will be able to move in at closing -- depending on what all needs to happen with the construction AND what the Certification of Occupancy you MIGHT have months of having to pay for a separate place to live with greatly complicates the loan AND stuff like INSURANCE...

If your numbers are correct, that it is should be worth about double what you are willing to offer and you can borrow about HALF of the cash and your are really are serious about having $200K cash to finish the place a smart lender ought to be able to work some combination of loans to get this deal done. You are going to have to do some serious leg work and be ready to bring MOUNTAINS of documents to support your income if you are self employed (a nice regular high income job would greatly simplify that aspect of things...) and be prepared for the lender to get "shut down" from above if their superiors think there is too much risk here, because there truly is: if you have ever done even MINOR remodeling it is very easy to let your taste and or "hidden defects" massively push your project over budget. If that drops your equity the lender will not be able to resell the loan w/o PMI and even with PMI delays might push you into an environment of higher interest rates and then you would not have the ratios to afford the mortgage.

If you own your own business and have relationship with a banker that MIGHT be able to go to bat for you that might be a good bet. Mid sized Credit Union might work, as might SOME mortgage brokers with connections to lenders that do construction finance AND then sell or HOLD those mortgages. This is NOT going to be a "pick up the phone and I'll email you the paper work" kind of a deal...

Good Luck!

[stevep]

You probably want to make sure that everything was permitted and everything up to the drywall stage has passed inspection. Also, verify that there aren't any liens from the subcontractors or suppliers.

[Lacerta]

How long did it sit at drywall stage, and was it fully enclosed during that time?

We've had local houses sit with only tar paper on the roof and the inside drywalled through the entire winter. I guarantee they need more than just the "cost to finish construction" There is a lot of remediation that will have to happen on them first.

[Tenzo]

Originally Posted by stevep

verify that there aren't any liens from the subcontractors or suppliers.

Ding! Ding! Ding!

Including people who worked for the comapny that walked away and may be filing for lost wages.

[latergator2008]

Best have a series of mold tests done. Most homes sitting like that get mold introduced. Once it starts, it never ends. Mold was here long before us and will survive long after we are gone.