I bought my 1st home now I need to remodel...loan?

[UTeric32]

Ok, here is my situation. I just bought my first house in Houston, but it needs a little TLC. It is appraised at $220,000, but I got it for $140K bc it was a forclosure.

Now I need to put about 30K into it to make it decent enough to live in. The problem is, I dont have that cash and need to get another loan. Can I get a home equity loan???

I have read that HE loans only allow you to borrow up to 80% of what you have paid off on your mortgage. I have also read that you can borrow up to 80% of the appraisal value of the home. So in my case since I bought for $80K less than appraisal value, I should be able to borrow 80% against this amount. Is this correct??

What is my best option to get this extra money to fix the house up? Thanks in advance.

 

[jimmyjazz]

A HELOC will cap out at the difference between 80% of your home's value and what you owe on your mortgage(s). In your case, if your house is truly worth $220K, then your total allowable house debt (mortgage + HELOC) will be $176K, which means you could borrow as much as $36K on a HELOC.

However, your financial situation has to be such that a bank would be willing to loan you $176K.

 

[madscientist]

lenders will see that you just bought the home for 140K and will use that as the value, not the higher appraisal. You would need to wait at least 6 months and up to a year to use the full appraised value of the home, depending on the lender.

a regular home equity closed end second can be for up to 80% of the home's value, including the first lien. A HELOC can be for the same total 80%, but the 2nd lien itself is capped at 50%.

for example, if you owe 10K on a home worth 100K, you can get a HE 2nd for 70K (or refi the first into an 80K HE) but can only get a HELOC for 50K. this does not apply to your situation currently, but there you go.

the only way to get them to take a higher value than what you bought it for is to show receipts for improvements, which is silly since that's what you want the money for.

maybe if you go to a smaller, private bank like northern bank and trust where they can pretty much do what they want with their money, you would have a shot. but you'd need impeccable credit and may need to be a member.

I'm trying to think if there are any lenders that will do a loan based on an appraised value subject to improvements and then do an escrow holdback for the funds for the improvements, but i don't know if they exist anymore. if they do, it would be more like a construction loan.

good luck.

 

[jimmyjazz]

I took out a Fannie Mae "Homestyle" loan years ago when I did a major ($140K) remodel and addition to an old bungalow. The LTV was calculated on the estimated final value of the property. Does that program still exist?

 

[madscientist]

not sure, but that one would do the job.i'll try to investigate.

 

[madscientist]

good call, jimmyjazz. here's the fannie mae page that describes the program: link

good news, bad news. good news is that this program is available even on purchase transactions, so seasoning is not an issue. other good news is that this is not a home equity loan so the rate won't be ~.5% higher than normal because of it. and its a first lien refi, not a piggyback 2nd, again this should mean lower rate.

bad newss - first is that you could have done this with your purchase loan if you had the time to get the contractor bids in place, but dealing with a foreclosed property, that was not an option. so if this loan fits your needs, you will need to pay closing costs all over again for a refinance. and if you have a prepayment penalty on your current loan, you will have to eat that as well. hopefully you can go back to your previous lender and request this loan for no points since he or she just made some money off of you.

any lender who sells to fannie mae should offer this program.

one other good thing about this loan is that you would still have the option of a HELOC in the future if you needed it, assuming you don't eat up all of your equity in the remodel.

 

[ninerhorn]

There are people who will do a rehab loan both as a purchase and a refi. They are very limited as are most construction loans.

And the rate will be higher than conventional.

 

[UTeric32]

thanks for all the info everyone...