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Old 01-02-2010, 05:05 PM   #1
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First time home buyer..some questions


Hi,

I am looking at a house here in Michigan. It is a 1938 era 1 and 1/2 story bungalow, about 1350 sq ft on a half acre. It has been on market for quite some time. It is a estate up for sale. I went through the house. It is well built and it has a new roof (sheeting too). The windows look original, so they will need to be replaced; 23 total. The garage will need to be torn down because it is unsafe/rotted. It also has city sewer and water, however it still has the well pump in the basement. It has a number of pipes going out the basement walls. The basement is dry. The electrical is in horrid condition. It has a fuse style box with many home owner improvements making it unsafe to to use. It would need new duct work, furnace and water heater. It is also near zero installation.

Now I am going to finance this through a FHA loan. I took my father (lincensed builder and plumber) to look at the house. We crunched some rough numbers for new windows, furnace, water heater, new electrical installed and brought up to code, insulation done, the plumbing brought up to code done by him and I or other lincensed trade friends of his for about $23,000-25,000. Just to make it livable.

Now I don't have that kind cash sitting around. I am calling the loan officer Monday. My questions are:

-Can I finance the improvements in my FHA fixed rate loan?

I wasn't planning on doing 203k FHA loan. What are my options? Or should I walk due to my financing options?

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Old 01-02-2010, 07:40 PM   #2
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First time home buyer..some questions


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Originally Posted by gltucker View Post
Hi,

I am looking at a house here in Michigan. It is a 1938 era 1 and 1/2 story bungalow, about 1350 sq ft on a half acre. It has been on market for quite some time. It is a estate up for sale. I went through the house. It is well built and it has a new roof (sheeting too). The windows look original, so they will need to be replaced; 23 total. The garage will need to be torn down because it is unsafe/rotted. It also has city sewer and water, however it still has the well pump in the basement. It has a number of pipes going out the basement walls. The basement is dry. The electrical is in horrid condition. It has a fuse style box with many home owner improvements making it unsafe to to use. It would need new duct work, furnace and water heater. It is also near zero installation.

Now I am going to finance this through a FHA loan. I took my father (lincensed builder and plumber) to look at the house. We crunched some rough numbers for new windows, furnace, water heater, new electrical installed and brought up to code, insulation done, the plumbing brought up to code done by him and I or other lincensed trade friends of his for about $23,000-25,000. Just to make it livable.

Now I don't have that kind cash sitting around. I am calling the loan officer Monday. My questions are:

-Can I finance the improvements in my FHA fixed rate loan?

I wasn't planning on doing 203k FHA loan. What are my options? Or should I walk due to my financing options?
What is the ROI here? Once fixed up how much equity will you have. Make sure it's worth your while to fool with it. Evaluate your long term goals - flipping it, live it in and upgrade, dream house and be there forever, etc.

And you know it will cost more and take longer than you plan - so work overages and carry costs into your calculations. Keep the "why nots" under control.

If you want to go ahead find a good loan broker to help identify the financing options. Work with the owner on the numbers if possible - get some cash back at closing, etc. Alternative ways for the funds - such credit card 12 month same as cash deals, etc. if you have the cash flow to pay them on time. Nothing wrong per se with a 203k loan either.

But above all - make sure the investment numbers will work, then figure out how to make it happen.

From a money point of view I don't like old houses - they eat money and are unpredicable. I like houses that are under 7 years old, three bed two bath, and decent neighborhood. Needing some cosmetic work can be a good thing. And that the numbers are right.

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Last edited by vsheetz; 01-02-2010 at 07:44 PM.
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Old 01-02-2010, 11:23 PM   #3
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First time home buyer..some questions


Well the house has been on the market for 2 years. It started at 109,000. It is down to 64,500. The house to the left is valued at 164,xxx. The house to the right is valued at 88,000. I pulled this data off of off zillow.com. The area is desirable for the school district. There isn't a registered sex offenders in the area either. It is on a dead road and not in a high crime area. I did equalization/tax search for the county. This is the second oldest house with on the street. My plan was to offer them $38,000 with the owner providing 6% @ closing.

As for my aspiration's with it. I plan on staying there. I grew up in the area and have a good job in the area. Dream house, not as it is. I want large garage and the lot allows it.
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Old 01-03-2010, 07:29 PM   #4
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First time home buyer..some questions


Look, the best advice I can give you is to have in inspected.

And I mean inspected - not by one of those franchise inspection companies who offer you preprinted 3-ring binders with generic information that applies to 99% of new homeowners - but a thorough inspection by a previous builder or somone so qualified. Get several if you need to...

The point is that $300 will get you a cursory once-over by a guy - who may be 'qualified' - but who for that money just can't give you the time it takes to look at the unseen in an 80-yr old house. And he'll have to dig to be able to tell you a lot of things that homeowners can't see, and aren't expected to.

Purchase price means nothing. A bad house can extract $200,000 worth of foundation repairs due to water damage - in spite of a $300 report that said: "your house is fine"...don't buy into the claim that the roof is new. Have someone come out and confirm - not that it was new - but if it was done right. Same for electrical, same for plumbing, same for foundations and structure. Water damage can affect where you can't see.

And if the inspector doesn't break a few walls, he ain't worth the money. Sure he'll have to fix them but that is the only way he can tell you for sure that there are no mould problems for example.

You get what you pay for. The binder and head office fees take $100 out of the $300 a franchise will ask you for, tools and overhead another $75 so the poor slob who spends 3 hours crawling over your house your investment works for what, less than my electrician??

Nope. Look to spend a grand on a real inspection. With the discounting going on in your case, I'd consider this the advice you'd best heed.
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