I think you are mixing up two things here. One is long-term institutional loans and the second is a quick-turn-over property. If you are buying for long term hold the Washington Mutual loan makes sense. If you are planning a quick exit it does not make sense to me.
Instead, find some short-term money to buy with and then repay when you finish fixing up the property. Sources: take over any existing loan(s) buying subject to them. Have the seller carry back part of the purchse price. Get other money from other resources you have such as equity loan on other property you own, people who know and trust you, private money lendre.
The ideal? The seller carries the whole purchase price for 6 months. You fix up the property with your own money and what can borrow.
Thought I finally had a deal but it’s slipping - Posted by Angela
Posted by Angela on September 12, 2003 at 12:50:57:
After a year at this, I was thinking I would finally sign my first deal this week but it’s falling apart due to my lack of experience.
I have a woman (divorce situation) who is trying to sell her home (she says this yet there are no for sale signs in the yard so…who knows. She called me based on a letter I sent her and other recent divorced people seeing if they wanted to sell). She’s allowing her ex to live in the house free of charge, even though the home was deeded to her in probate, while she is in an apartment (could be a problem later I’m sure). They paid $25000 in 1987 for the home (and I must confess, I haven’t asked how much they owe though I can’t image it’s too much…the court records don’t show any refi’s or additional mortgages) and she has to pay her husband $25000 (as part of the divorce settlement I presume). She is planning on relocating and her son just started college and she wants to keep him there.
My figures show the home should sell minimally for 89000 after repairs (she supposedly has recently had the house appraised and it came back at $85000; I can’t believe it would appraise at that price in its current condition but that number could help me in what I’m thinking of doing). Unfortunately I have absolutely no experience in judging repair costs yet so I’ve allowed for 13000 in my estimates. I’m fairly sure I’m NOT under, if anything I’m over (the things I know it needs are carpet, paint, vinyl, new drywall in ceilings from leaky roof two years ago, a little bathroom remodeling and a little landscaping in the front and it’s only a 1064 sq. ft). She REALLY wants $60000 and she needs the money within the next few months. Thinking lenders would finace 80%, I told her I’d pay her the $60,000 if she’d carry 12,000 of it for 6 months and I’d have the bank financing for the other $48000 (I actually presented her with multiple offers but the only one she was really interested in was the one where she’d get her asking price of $60000 and doesn’t have to wait too long for it). She quickly agreed to this (as long as the contract would read that the house would default back to her if the her money wasn’t paid to her in 6 months). My plan is to rehab it and sell it.
Now comes the problem and the exposition of my inexperience (and perhaps many of you already saw it). The lender will not allow her to have a balloon payment that’s due in 6 months. And the standard lending institutions like Washington Mutual, won’t even allow her to finance 20% (since that would be 100% financing and my risk is 0 though I though that’s what real estate investment was all about). All that seems obvious now that I’ve spoken to them (especially the part about the balloon in 6 months). I have several brokers who are supposed to be calling me back to see what their investors will do.
I have an idea that I’m really wanting to work but I don’t know how to word it in a contract so I’m hoping ya’ll can help. Washington Mutual has a HELOC first loan they’ll do on an investment home but they’ll only finance 75% and there can’t be any secondary financing. So, I started thinking to myself…what if I jack up the purchase price to 76000 (presuming I can get an appraisal for that much) such that 75% of it would be $57000 (which would be my new offering price to the owner so I don’t know if she’d accept but…). Then I put in the contract that I’d receive a repair credit for $19,000 (the rest of the money). I called Washington Mutual and asked them what they thought and to my shock they said they didn’t think they had any problem with it but they’d have to call the title co. to see if they did. Well, WAMU called me back and said they “would not be able to account for that…credit for repairs”; that would have to be “an agreement with the seller as a separate agreement set aside from the loan”. So…while I’m waiting for the other brokers to call me back and while I’ve had this woman dangling for two days now, can someone give me an idea on how I could work/word this deal to make it work through WAMU? That loan would be sweet because it’s VERY low cost and interest only payments (at 4.8%).
Re: Thought I finally had a deal but it’s slipping - Posted by Trevor
Posted by Trevor on September 12, 2003 at 14:03:54:
Hi,
You an have the repair cost go to a third party individual on the hud. This can be a corporation set up under your wife maiden name or a friend you can trust. Lenders will not allow you the buyer to leave closing with cash for repairs because you can take the money and run. However, they will have a third party collect the funds. As long as it it a legitimate company. Good luck!