Funding Rehab Costs
I posted a question a few months ago and still have not gotten a solid idea if the following is possible:
We are currently looking at a property that will need approx. $15,000 in repairs, per a reputable licensed builder. The seller is anxious to sell, will work with us through our relator. We would like to know if we can add the $15,000 plus closing costs into the loan. In other words, re-write the contract to include that amount in the total. The seller would cut a check for the repairs payable to our builder at closing. He said he could put a lien on the house to insure payment. Does he need to? Is financing the repairs in this manner legal? Several lenders have suggested to do it this way. When we get it remodled we will be able to rent it with a profit. We will then sell it in a year or so. Please help us on this. We would like to get the house this way if it is feasible.
How's your credit situation? Can you qualify for a loan.
Typically conventional lenders only allow 3-6% seller concessions---meaning $3000 to $6000 per $100,000. I'm guessing that your $15k is over that allowed limit.
A way to do this, however, is to use a construction loan. Start with a local bank (not a franchise) and see what they can do for you.
Also-keep in mind that the more specific of a question you ask, the better responses you'll get. A vague question like this is hard to answer and it doesn't get the results you'd like it to.
Lenders hate cash leaving their hands and going to the buyer or related parties.
If the loan funds repairs, the risk the lender is until the repairs are done the loan is not secure.
Hence the use of an escrow into which the funds will be placed. As the work is done then the funds will be paid out. This protects the lender.
As noted you have to be careful about the totals and ratios. Once you are above the 3%-6% you really are talking a construction loan.
If you can fund the work otherwise an alternative is to get a lease/option and then do the work. Next exercise the option and obtain a loan for the improved property. It is more likely to be valued fully this way as estimating value after work is done sometimes will come in slightly lower then you want.
You never mentioned if the seller was discounting the deal enough for there to be room for the improvements. If you over improve the value will not be there and you will not get the loan.
Assume that all of the above will be slightly harder when you explain that you want to rent the property as you are asking the lender to do both a construction loan and the perm NOO loan. Not like it can't be done. Just that an OO loan would be easier and more likely to be approved.
John
[addsig]
have seller do the repairs not then renegotiate price
