mrsteve

iTrader: (1)

I am planning on purchasing a row house in downtown Baltimore City to rehab. I can get a house for between $60-90k. On top of that I'll probably need $30-50k for improvements.

Will I need two loans? One for the purchase of the property and another construction loan? Houses in this area normally sell as a shell for around $60-90K but once they are improved can reach $260-300K very quickly.

I will eventually live in the house; it isn't strictly an investment property but I won't be there for more than 4-5 years. I plan to purchase the property, have my contractor re-hab the house for the next few months while I live at my parents house, and then move in once it's ready.

Since I don't plan on living in the house for a very long time would an interest only loan be a good idea for me? With the way real estate appreciates in this area I should still make a decent amount in the equity in my house after 4-5 years even though I'm not paying on the pricinpal.

GoDucksCLSPride

You can do this a number of different ways so I would definitly reccomend finding a good lender through a referral to discuss your options in depth.

One way to do it would be through a Rehab loan. Typically, these loans will go as high as 95% loan-to-value of "as completed value." Using strait numbers, that would unfold like so.

purchase price: $85,000
As is completed value: $100,000
Loan amount: $95,000

In this type of loan, the difference between purchase price and loan amount will serve as your proceeds for improvments. This doesnt necessarily mean you get $10,000 for upgrades right out of the gate however. Most if not all lenders will usually require an "escrow holdback" of some percentage of the loan amount. Meaning, they will require you to put as much as 10% down on the purchase initially, and will refund that 10% 30 days after close. This is to prevent you from purchasing a 95% LTV home (theoretically 5% down) with nothing down because the numbers just happened to work out in your favor. (as you can see from the strait numbers above, without this policy, you could buy the house for nothing down because the purchase price is less than the loan amount.)

This type of loan will have mortgage insurance if over 80% LTV so you will likely want to refinance when construction is completed. This will also utilize the true appraised value upon completion and you can then utilize the values that you are hoping for. The closing costs of the rehab loan plus the costs of the refinance are something to consider when judging one plan vs another.

Another option would be to purchase the home with a standard conventional loan to get the property in your grips. This will alow you to purchase it at 100% financing or whatever you choose without the restrictions of a rehab loan etc. Once in your hands, you can then refinance into a rehab/construction type of loan to get the proceeds for your improvements. This is the worst way to go because once construction is complete, you may want to refinance again into a conventional product, thus totallying 3 refinances to complete your goals.

ANOTHER option would be to F the conventional lending route and talk to a hard money lender. They will loan you strait cash for purchase and improvements and close in as little as 3 days. The rates and points suck but it appears that you will see upwards of $150k in equity upon completion. The 20k or whatnot you lose in points up front is a small price to pay for speed of completion and no rules. Then you can refinance into a conventional product and be on your way.

Interest only or non is the least of your worries right now because the truth is, you may be up for a refinance or 3 to complete your goals. You'll never own a loan long enough for the product selection to impact your principle.

GoDucksCLSPride

Oh and everything I just described is from 10,000 miles up. There are many many many smaller factors involved in each method so this is where it helps to find a "lender partner" vs some yutz you found who gave you a good rate. Rate isn NEARLY as important as service here. You want someone who will stay with you through the process and put you in products that play off each other to make the next move the most effective. To make the most money out of this, its a marathon, not a race and you definitly want to have a supportive team.

mrsteve

iTrader: (1)

Thanks a lot

03typeS6spd

steve

there is an option in this area called www.sell2us.net for just the va,md,dc area that does the hard money thing ducks talked about

http://www.sell2us.net/finance-hard.htm is the specific page

6 months for up to 70% After Value which would probably be more than enough... sucks on the front end, but if you are short on cash it helps, 5 points and 12% for 6 months, but you can get the money up front... with nothing down if the ratios are right

i am checking them out for possible building something down in vienna, my dad recommended them to me and they seem fairly legit, they should at effectively 22% APR

doing this up front and then financing it normally, you could still probably work a nice 80%ltv loan and keep your rate decently low

ryan7645

Whoa.....first off, how familiar are you with Baltimore City? There are some areas being pushed at DC-area residents that you simply DO NOT want to live in!! Like DC, we've had an unsustainable boom (or bubble) in RE prices, even in less than desirable parts of the city. Are you used to living in the inner city? Disregard this if you're planning to buy in Federal Hill or Canton (which at the prices you're talking would be tough). But, there are many areas in that price range that may continue to improve (depending on your definition of 'improve') if the influx of DC-area yuppies continues. However, unless it's right around the inner harbor, or in the Roland Park area, its a gamble. Also, insurance on your car will probably double, as well as the risk of theft. If you don't have at least off-street parking, the Pit Bull Tire Lock (http://www.tirelock.com/product.php?...deb0809160c467) will be a necessity.

Do you like to commute? If you plan on living in Baltimore City and working in Montgomery County, plan on 60-90 minutes one-way commute. Up until last year I worked in downtown DC and was able to take the MARC train from Penn Station (downtown) Baltimore. But...I was able to sleep on the train, and only had to commute 4x week, with flexible hours. My tolerance for traffic is low, yours may be different. As someone that lives on the north end of town, driving to MoCo (or even Columbia) would suck during rush hour. It would still be rough living downtown. But, if you work during off-peak hours, disregard everything bad I said about the commute.

Personally, I'd rent a dive in the before I'd take an interest only loan in this market. As a lifelong Bmore resident, I can tell you that even the realtors in my area (which is one of the 'hot' areas) say that the current prices (let alone the 15-20% ++) rise in prices is unsustainable. A townhouse on my street is priced at a competitive price for the area and has been sitting for weeks.

I simply can't afford to buy anything in this market that would meet my standards, so I took the 'buy your 2nd home first' approach. I bought a condo at a ski resort in WV (near Deep Creek) as a rental and for capital appreciation, and continue to live with my parents. Downtown Baltimore isn't a bad place to buy, just be very careful.

As far as mortgages, stay away from interest only and go to http://www.bamcdirect.com/
No point or closing costs. No gimmics. I know people that have used them with rave reviews.

michimonster

he's looking at washington village

michimonster

oh and maybe locust point, which i vetoed because of the cancer cases they have over there.

ryan7645

washington village can be good or bad depending on where. either way, if you're living in potomac, for example, it will be a big culture shock!! if you're commuting towards dc, that's probably one of your better bet areas. obviously, the closer to barre circle the better, at least as far as i know.

will you be doing any of the renovation work yourself? if you could do most of the stuff except electric/plumbing/roofing and the really hardcore stuff, you could probably cut your renovation costs by 75% if you can do kitchens & bathrooms yourself, one step at a time. the labor will kill you on those jobs.

I can name some areas i'd pick in your $ range, but they would be on the north side and not as conducive to DC-area commuting.

ryan7645

locust point, too much $$$ for too much cancer risk.

plus, some of the wannabe yuppies in fed hill & locust point are so
Any guy over 18 wearing a popped-collar and driving a jetta (you see those types around there quite often) is a total :ghey:

95gt

Just my I used BAMC for my refinance and unbelievably unsatisfied. The people were slow, made numerous errors (actually sent me a file with someone else's mortgage info on it, scares me to think how my personal data was handled), and rates were pretty average. They of course just sell your mortgage right after the help you,. as an fyi.

Just my experience but they will get no repeat business from me and no positive comments to others. The math errors I caught were just unbelievable to me.

be careful in where you choose, scout the area out many times before choosing. Baltimore has just an amazing amount of areas I would not want to be caught in after dark. Some are nice though, you just have to sift thru the garbage to find them.

Good luck

michimonster

lmao hes going to look at washington village in a few hours. i told him not to go at night. but to go in the daylight when he can actually see whats around him.


a city is a city guys. everyplace has their horrible, liveable, and then nice areas. he'll be good

mrsteve

iTrader: (1)

Ryan,

Thanks for the input. I'm used to the commute. I used to live in Ellicott City and commute to Bethesda. That was a 35 mile commute. From Washington Village to Silver Spring where my office is now is only 31 miles. I'm not worried about the commute.

Washington Village is an area full of new rehabilitations. Every street I turned down today had at least 3 or 4 houses currently being rehabed and I highly doubt the poor people that used the live in them are the ones putting out the cash to develop them. There's new construction 1 block north of Washington Blvd where houses are selling ofr $600k+. I'm confident that Washington Blvd is the "new Federal Hill."

As far as the construction loan goes I'm going to meet with a local lender next week.

mrsteve

iTrader: (1)

Let me know what you discover about sell2us.net

mrsteve

iTrader: (1)

Okay so the "hard money" lender that Mason found says the following:

So this means I could purchase the property with a conventional mortgage. Then go to the hard money lender for the cash for the repairs. However it appears as if I don't get cash up front. So how does the builder get paid? Must they wait until the project is completely finished to get paid or do they get paid as they finish certain amounts of work? I guess these are really questions I should be asking the lender not you.

So it appears as if they'll finance up to 70% of the after repair value. Chances are that the home will be valued around $250K once repairs have been made (based on what other houses are selling for). So technically they could lend me up to $175K for the purchase of the home and the repair costs. Hrrrm. So after all the work is complete (6 months) I apply for another mortgage (based on how much I owe the hard money lender) and pay them back. Very interesting.

haiduc

I was doing some digging around and you don't have to relegate yourself to the sell2us place.

You can finance the purchase of the house, and then get up 50k for the renovation. This is good, because it makes you eligible for some of the FannieMae porgrams, which don't have 12% interest rates.

mrsteve

iTrader: (1)

Can I exceed $50K?

03typeS6spd

I found around here that my salary was above the county average which kept me from a lot of federal and other programs for first time buyers.

what else did you specifically see? im interested, im not trying to push sell2us, just seemed like a way to get money with jumping through hoops up front, of course with the up front cost

mrsteve

iTrader: (1)

A lot of the construction loans, including sell2us, doesn't give you cash up front. The money for construction/repairs is put in escrow. For example:

You install new HVAC, plumbing, electrical: $8,569.09. You send proof that these materials have been purchased and installed to the lender. They then either send out an inspector to verify it has been done or take your word for it and issue a draw off your loan. Then you'll get the cash. So you do need some money in hand at first. Or if you are using a general contractor they will do the work but they won't get paid until you do.

Three weeks later you've got drywall, flooring, and windows installed: $12,503.76. Follow the same steps and you'll get a check.

You need to lay out ahead of time exactly what you plan to do with an itemized cost list so the lender knows what they are lending you money for.

03typeS6spd

hmmm, suddenly that seems pointless, i can't believe i didn't notice that before...

i wonder if it changed or if i just glossed over it, so basically you would need to have at least portions of the money up front...

enough to get started, then inspected, reimbursed, more refurbing, inspections, reimbursed, that sucks...

you can go ahead and me for that

mrsteve

iTrader: (1)

Nah it really isn't that much of a hurdle. I mean you aren't going to pay a GC for work before they complete it. So in the contract with the GC just stipulate that the work they perform must meet the approval of the lendor or they aren't paid until it does. Once it's approved they cut a check that day and you get it right away.

One advantage with sell2us is I believe there are no monthly payments during the term of the 6 month loan. You just owe them what you borrowed plus interest once work is complete. That should be easy enough for me considering I'll have gained at least $100K in equity right away.

mrsteve

iTrader: (1)

This would be a problem if you were being your own GC though and had to have cash to go to Home Depot and purchase materials. But then again if you had adequate available credit you could use credit cards and then pay them off as soon as your draw is approved on your loan.

haiduc

Yes, it would put you in a OTC product. It's based off conventional loan products (i.e. fixed, arm, I/O, etc.)

Basically what happens is this: You get the loan, an appraiser goes out there and evaluates the property as-is and the value of the property when it's finished. Based on that, the loan ammount is reached. You pay out during the construction of it like a regular mortgage.

The renovation money is put into escrow for the contractor, and they continue with the buildup without having to ask you for money, or stoping the process to wait for more money.

03typeS6spd

true, you could cash flow it if you had to, but that would be more than a second job trying to keep tabs and spending on a gc...

as long as you have about 20-25% of the construction costs i would say you will be fine...

or really freaking good credit to ring up some nasty bills, pay them off on time, and then turn around and apply for a mortgage shortly

haiduc

what happens if the renovation time takes more than 6 months?

03typeS6spd

7) What happens if I need more than 6 months to complete my project?

In some cases, Express Homebuyers will extend the term at the six month anniversary. For larger projects that involve large rehabilitation or development, Express Homebuyers will assign a longer term to the loan.

haiduc

but, why play with fire when you can apply for the mortgage, and have everything taken care of from the get-go.

You get to take early advantage of the tax breaks, have money put away for the contractor, and close without having to worry about what happens if they exceed 6 months.

haiduc

I have a delicious horror story about someone going into forclosure because he was being his own contractor and kept exceeding the allocated time.

Guy went somewhere to get a lot loan, started building a house, didn't quite finish it. Got a second, and a third lean agains the property, still didn't finish it.

Company that gave him the lot loan said they were going to foreclose on the property, he ran around. Came to us, with 3 days left, then decided to go to a broker with 1 day left. He went to closing, signed, then the brokers lender rescinded on the 2nd day.

Haven't heard from him, but I don't think it was a good outcome.

mrsteve

iTrader: (1)

So that is all combined in one loan? No need to close multiple times?

I actually plan on refinancing once construction is complete to take out some equity right away. I'm looking at a $120-130K initial investment that will turn into a house valued at $240-280K once construction is complete.

I'll probably finance $160K to pay off all my debt, including my car. I know I'll probably take a hit on the interest on the refinance because I'm getting cash out of it but when you add up the credit card APRs, the interest on my car, etc I think it will be worth it. Not to mention it will help me with furnishing the place. My cash flow isn't very long right now. Only about $3,000 in cash. $9,000 if you include the 401(k).

haiduc

you only need to close one time, hence the OTC name.

You might be able to exceed, and begin with 160 from the start, but I have to ask the underwriter is that is possible.

mrsteve

iTrader: (1)

I don't want to pay a mortgage 160K mortgage on a 80K house right away.

I'm actually leaning towards the hard money loan because it doesn't require any cash out of my pocket up front.

ryan7645

I've heard several ads on WBAL for K Bank, they supposedly specialize in construction/renovation/rehab loans for Baltimore City. Don't know anybody thats used them, but here's the link. http://www.kbank.net/index.html. They are a local Baltimore-based bank. Also, may want to look into 1st Mariner, another homegrown Baltimore-based bank. http://www.1stmarinerbank.com/Default.asp. I do know 1st Mariner is a very reputable bank. Many of the larger outfits, SunTrust, Countrywide, etc. are geared towards the 'traditional' market, and would likely lack the flexibility to meet your needs, not to mention drown you in red tape