2 Options for First Time Home Buyer - What Would You Do?

[Robert Clark]

Hi everyone,

What would you do? 

Scenario 1: You are approved for 400k using FHA or FHA 203k financing.

Scenario 2: You are approved for 270k using FHA financing with a $6000 grant from IHDA(Illinois Housing Development Authority) that is forgiven over a 10 year period and does not have to be repaid if the holding period requirements are met. But if $6000 grant is accepted you CANT do 203k financing.

I'm aware that buying and renovating will give me the best chance at having equity in the property. But I also realize that turning down a $6000 grant that doesn't need to be paid back would not make any sense financially. 

Buying turnkey would require less work, but I may be upside down for the short term, even longer if market has downturn. I may not have an exit strategy for 10-20 years and would have to rely on cash flow. If I have no intention to sell & buy at right price, that's ok and works out I guess. 

I could also attempt to do a 203k loan; buying something distressed in hopes the ARV will be enough for me to refinance while also receiving monthly cash flow. Yes, im aware of all the risk, stress and difficulty of the loan, working with contractors, etc I was for sure going this route until I became aware of the grant option with IDHA.

I think the most logical thing is take the 270k option with $6000 grant and purchase something, not distressed, but in average to good condition. Then over time renovate the units myself with my own money. That way I can get the benefit of buying a property that's ready to rent out, also receive $6000 that doesn't need to be repaid, and force appreciation/increase rent by improving cosmetics of the property.

Chicago market by the way. Turnkey duplexes are around 300k. Might be lucky to find something in average condition for 250k-275k depending on location. Can find something distressed for 50k -100k that may need 100k-200k worth of work with ARVs around 300k...

Interested to hear what YOU would do?

Thanks

Robert