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My mother-in-law is disabled and we've been looking for a mother/daughter situation for our first home to buy to move her in with us. Currently she lives on her own in a rented apartment about 40 minutes away. She has a progressive strain of MS and has recently lost the ability to walk.
We've recently found what we believe is the perfect property. A 1450 square ft ranch house built in 1940 that had a two story 600 sqfoot addition built off the back in 2003. The current owners are using living in the house as a single family however listing it as a mother/daugher. The addition is attached to their house with no speration and they are using the space for a day care business. It has a seperate utility meter, and a kitchenette (just a sink and fridge). The listing is $370K, taxes $4800 and my agent believes we can talk them down as low as $330K.
Today when talking to our mortgage broker he gave an immediate 'Uh Oh" and noticed it has been assessed as a legal 2 family residence not as a single family house. My broker is indicating that this will make things a bit dicey. For one, he says it will be hard to find comps. If the bank deems this as a unique property they might pass on the financing. If approved I probably wouldn't be able to be approved for 100% financing conventional(most programs will require 3% or 5% down) and our PMI would nearly double. This is a real grey area... even as the area they consider an 'apartment' would need some significant modification before it could be a rented space. My guess is the owner had a friend on the village board... because it's a considerable stretch to consider this living area a 'legal' seperate apartment.
I believe my broker, I'm just trying to understand my options . The house has been listed since 9/07 and without trying hard the listing agent dropped the price to $355K (which tells me they are having a hard time moving this property). I'm trying to keep my monthly around $2700 per month. If the taxes go up (after a reassessment) or the PMI doubles it will price me right out.
My wife and I combine income is $136K. My scores are the lowest at 621, 633, 657. Hers are 660, 675, and 687. We have $17,000 for a downpayment (closing costs...everything) and an additional $53K in 401K. Should this be a real problem?
Location: central, between Pepe's Tacos and Roberto's
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I will agree with your broker on the comps issue, but that is about it. Two unit properties are as acceptable as single family properties. There may be issues with the lender about the legal assesment as a 2 unit though, depending on the condition and amenities of the addition.
There is no adjustment to the MI coverage that I can find. However, even if you get an offer accepted at $330K, that $17K will not go very far, it will cover the down payment but not much else. However, if a higher property tax would break you I would definitely step back and re-analyze. Property taxes go up quite regularly, and you don't wan't to stretch too thin.
I will agree with your broker on the comps issue, but that is about it. Two unit properties are as acceptable as single family properties. There may be issues with the lender about the legal assesment as a 2 unit though, depending on the condition and amenities of the addition.
There is no adjustment to the MI coverage that I can find. However, even if you get an offer accepted at $330K, that $17K will not go very far, it will cover the down payment but not much else. However, if a higher property tax would break you I would definitely step back and re-analyze. Property taxes go up quite regularly, and you don't wan't to stretch too thin.
Well... put it this way... if the MI or taxes would go up significantly this would become pretty undesireable quickly. In terms of taxes this home is low in comparison to other homes in the area (most average about $8K). My Monthly budget is $2500-3000 per month. At $340K and and taxes at $5K that puts this house at $2750. I expect the taxes to go up but if anything is going to affect the monthly before I step in I will surely reconsider. My monthly gross (before bonuses) is $10, 200 per month and my monthly debt obligation is $900 total. Includes cars, CC cards, loans... everything. We'll also get an additional $750 per month from my mother in law for living expenses and likely list her as a dependent.
Get rid of the kitchenette and you no longer have two units. It's that simple.
Is it really that simple... for one, the kitchenette is a feature we like. #2-I'm of the impression that the Property tax status-multi-family is the larger problem, right? I'm mean does the bank care there's a kitchenette in the back of the house? The fact that this has been converted to a legal two family seems to be the greater challenge.
My mother-in-law is disabled and we've been looking for a mother/daughter situation for our first home to buy to move her in with us. Currently she lives on her own in a rented apartment about 40 minutes away. She has a progressive strain of MS and has recently lost the ability to walk.
We've recently found what we believe is the perfect property. A 1450 square ft ranch house built in 1940 that had a two story 600 sqfoot addition built off the back in 2003. The current owners are using living in the house as a single family however listing it as a mother/daugher. The addition is attached to their house with no speration and they are using the space for a day care business. It has a seperate utility meter, and a kitchenette (just a sink and fridge). The listing is $370K, taxes $4800 and my agent believes we can talk them down as low as $330K.
Today when talking to our mortgage broker he gave an immediate 'Uh Oh" and noticed it has been assessed as a legal 2 family residence not as a single family house. My broker is indicating that this will make things a bit dicey. For one, he says it will be hard to find comps. If the bank deems this as a unique property they might pass on the financing. If approved I probably wouldn't be able to be approved for 100% financing conventional(most programs will require 3% or 5% down) and our PMI would nearly double. This is a real grey area... even as the area they consider an 'apartment' would need some significant modification before it could be a rented space. My guess is the owner had a friend on the village board... because it's a considerable stretch to consider this living area a 'legal' seperate apartment.
I believe my broker, I'm just trying to understand my options . The house has been listed since 9/07 and without trying hard the listing agent dropped the price to $355K (which tells me they are having a hard time moving this property). I'm trying to keep my monthly around $2700 per month. If the taxes go up (after a reassessment) or the PMI doubles it will price me right out.
My wife and I combine income is $136K. My scores are the lowest at 621, 633, 657. Hers are 660, 675, and 687. We have $17,000 for a downpayment (closing costs...everything) and an additional $53K in 401K. Should this be a real problem?
Your mortgage broker should have absolutely no problem getting this home financed, regardless as if its a 1 or 2 family housing.
Buildings from 1-4 units are all financed as residential and are all financed the same. Its not till a building becomes 5+ units that the financing becomes tricky, because they get financed as commercial property. Even hud has 1-4 units classified as "single-family" homes.
I'd be a little concerned if the mortgage broker does not know this.
Final note, since her credit scores are higher then yours, put her name first on the application. You might just qualify for a little better interest rate.
Your mortgage broker should have absolutely no problem getting this home financed, regardless as if its a 1 or 2 family housing.
Buildings from 1-4 units are all financed as residential and are all financed the same. Its not till a building becomes 5+ units that the financing becomes tricky, because they get financed as commercial property. Even hud has 1-4 units classified as "single-family" homes.
I'd be a little concerned if the mortgage broker does not know this.
Final note, since her credit scores are higher then yours, put her name first on the application. You might just qualify for a little better interest rate.
The problem isn't commercial versus residential. That wasn't the challenge expressed by my broker. He expressed concern becuase of the size of the property and it's listing as a multi-family there wouldn't be many available comps for the bank to do a proper assessment. If the bank deemed this as a 'unique property' then I may be required to put down 5-10%. I'm pre-approved at $380K for 100% fin and he doesn't believe I should have a problem getting it. But with only $17K to put down it puts me in a tough position. It doesn't seem like I'll get much help from the seller (covering full closing costs). If I were able to I'd rent for another year and build a larger downpayment... but we have to find a place form my ML to live. We make over FHA limits and without digging into our 401K (and getting destroyed on our taxes next year) this is what I have to work with.
Location: central, between Pepe's Tacos and Roberto's
2,086 posts, read 6,845,674 times
Reputation: 958
Quote:
Originally Posted by ukikkgr
The problem isn't commercial versus residential. That wasn't the challenge expressed by my broker. He expressed concern becuase of the size of the property and it's listing as a multi-family there wouldn't be many available comps for the bank to do a proper assessment. If the bank deemed this as a 'unique property' then I may be required to put down 5-10%. I'm pre-approved at $380K for 100% fin and he doesn't believe I should have a problem getting it. But with only $17K to put down it puts me in a tough position. It doesn't seem like I'll get much help from the seller (covering full closing costs). If I were able to I'd rent for another year and build a larger downpayment... but we have to find a place form my ML to live. We make over FHA limits and without digging into our 401K (and getting destroyed on our taxes next year) this is what I have to work with.
Actually FHA doesn't have any income limits. They do have max loan limits though, and depending on your area the highest they go up to is $362,790 in extremely high cost areas.
When taxes go up, it happens on an annual basis, so I wouldn't expect the taxes to go up before you close. As far as the MI goes, like I said before there is no difference in terms of MI coverage for single family vs. 2 unit. At 100% loan to value your coverage will most likely be 35%, which would relate to a MI payment $402.33, based on a loan amount of $340K. That cannot double because the property is a 2 unit.
Actually FHA doesn't have any income limits. They do have max loan limits though, and depending on your area the highest they go up to is $362,790 in extremely high cost areas.
When taxes go up, it happens on an annual basis, so I wouldn't expect the taxes to go up before you close. As far as the MI goes, like I said before there is no difference in terms of MI coverage for single family vs. 2 unit. At 100% loan to value your coverage will most likely be 35%, which would relate to a MI payment $402.33, based on a loan amount of $340K. That cannot double because the property is a 2 unit.
I guess my concern is if the property is reassessed and includes the 800 ft extention (which is not part of previous assessments) then the taxes will surely go up... tremendously. I just checked and the tax bill for 2008 increased 800. It's up to $5600. If the extention was included in the assessment I imagine it would be over $7000.
Right now he has me in a single family home plan... and my MI at 97% financing would be $173. Not sure which program it is, however this is running just my financials ($90K in income) with a $380K ceiling. 6.15% after the APR.
Your mortgage broker should have absolutely no problem getting this home financed, regardless as if its a 1 or 2 family housing.
Buildings from 1-4 units are all financed as residential and are all financed the same.
I'd be a little concerned if the mortgage broker does not know this.
He will if there are not any similar 2 family comparables.
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