Seattle

[ajayc]

we are looking at one of two comparable properties for purchase (within a half mile of each other, same schools, about same age).

Property 1 is listed about $100k lower and is about 800sqft larger, however the property requires a fair amount of work (new roof, backyard fence, windows and some nice-to-haves such as new carpet, bathroom upgrades). 

Property 2 is in pristine condition - nicely upgraded, very well cared for and ready to move in. But definitely feels smaller.

Looking for suggestions on how we would go about financing the upgrades should we choose to go with Property 1.

Thanks in advance.

[Ready-Set-List]

Hi there,

The first place to start is probably to figure out how much the upgrades would cost.  

It often makes sense for a buyer to apply for a 203k loan.  There are some hoops to jump through with a 203k loan, which is not a bad thing because you often end up with a better project than you would if someone wasn't forcing you to be so detailed and complete.   If you would qualify for Property 2's price at 100k more then you'd probably qualify for the 203k loan.  

It doesn't sound like there's anything close to $100k in work at Property 1...  of course, that's depending on how large the home is, what type of roof it is, and how crazy you go with carpets and bathroom finishes.  800 square feet is a whole lot of house.  If you're planning on  being there for a while, I'd definitely do everything possible to get that extra space!

Talk to your broker, your lender, and a good contractor.

Best wishes,

Eleanor

[ajayc]

Eleanor, Thank you for the advice. I will research 203K loans.

The initial estimate on the roof is about $20K (~3000sqft house). Not sure how much windows would run - there's definitely plenty of them around the house - typical NW style architecture.

Definitely looking at being in the house a long time - hence very keen on investing in the needed work and upgrades.

[Ready-Set-List]

Whatever you do, make sure that you're getting really solid bids and that there is contingency built in.  This is definitely one instance where you don't want to go with the lowest bidder because if something should happen, I believe it is difficult if not possible to increase the amount of the loan.  In any remodel, the chances of an unforeseen condition arising is high.  A good contractor will be thorough with you about what potentially lurks beneath any given project.

Windows can be crazy spendy.  $20k sounds a bit high on a residential roof unless it's a 3000 sq ft rambler, there are lots of layers, crazy pitch, unusual materials (did a $20k roof that had concrete tiles OVER cedar shake...), etc.  But I'd rather see you estimate high than low.

I know a lot of people like to do the sexy reno projects, but if I were you I'd focus on big ticket items that can be invasive and disruptive if they have to be done while you're living in the house such as windows, structural work, plumbing & electrical overhauls, flooring, insulation (particularly in walls- attics aren't so invasive), waterproofing, kitchens, etc.  Make double dang sure you have a top-notch home inspector.  You can always budget in the sexy stuff, but if you don't take care of the core issues they will eventually come to a head... and usually when you can least afford it!

[InsideOutBI]

Don't forget to include the cost of a consultant. Any improvements over $35,000 or that would be strucutural require a 203k consultant. Fees range from $600-1500 depending on the amount of time estimated to complete the project and the amount of the repairs. There are NECESSARY repairs that have to be done in order for the loan to qualify and then the WANT-TOs. For example, a roof is NECESSARY, carpet is not. The loan prohibits going over 6 months (without special permission, rarely given). We are an FHA 203k approved consultant so if you have specific questions give us a call. I agree with Eleanor, this is a great program especially if you are serious about doing quality work.

[Clasen_Advisors]

203k rehab maximum mortgage amounts are based on the lesser of 1) or 2) of the below multiplied by the appropriate LTV factor.

1) The as-is value or the purchase price of the property before rehabilitation, whichever is less, plus the estimated cost of rehabilitation or

2) 110 percent of the after-improved value of the property.

If you find that the 203k rehab won't accommodate everything you want to do to the place, most lenders have conventional rehab loan products as well (they both pay out on a percentage of work completed basis).  The advantage to the 203k is when someone is wanting or needing to do minimum down and still buy a home that needs some work.  

As far as which home to buy, even a significant amount of remodel work can seem like it's not worth the effort at first but those memories quickly fade once the work is done.  Try to imagine the house that needs work in its finished state and if that one speaks to you more, that's the one to go with (it sounds like it is ).

[Sleepwalker]

What about the lots/locations? Those are extremely important to me. I'd rather learn live with less if I get to live in my favorite location on a great lot.

[Clasen_Advisors]

There are no restrictions on locations for these loan programs.

[Nanomug]

Take a contractor (or home inspector)  to look at property 1 and give you a rough estimate for each item and an estimate on how long the current items would be serviceable.  

Determine what needs to be done now and what can be done ongoing. 203k loans are great but also have time limitations and contractor requirements that not all contractors want to deal with.  

Cosmetic things are flooring and paint.  My rule of thumb on cosmetic things is to only deal with it if needed.  When we bought before kids and after kids gave us different priorities in how we renovate.  Pre-kids I could handle a contruction zone for a long time.  When the kids were little I fell apart during a renovation.  Teen years brought time to renovate yet the need for school/homework routings that were not interupted.