How to finance - reo says 'cash'!?

Question

I am not a real estate investor. Let's just start there, lest you think I have any idea of what I'm doing!! ;-))) (chuckle)

I have my eye on a house - REO asking $200k; says 'cash only'; will not qualify for conventional as it is "as is" in need of work - (4 bdrm/2.5 bath on 10 ac; + 900 sq. ft guest house). This would become my primary - with renting the guest house. There were 2 other offers that fell through - if there was an appraisal - could I get my hands on it? house has been listed >200 days - is this to my advantage? seems so.

Now I don't have $200k just laying around (tee hee!) . . . how do I buy this property with the least amount of cash out-of-pocket?

Now - I own a house outright worth @$135k. is becoming a rental.

I have another house (primary residence) - probably irrelevant except for current debt ($800/mo escrow) - not much equity.

I have a fair amount of savings ($100k+ liquid) - have extra $$ in various retirement accounts.

What is the best way to pull this off? Should I (could I?) take a mortgage on the house I own outright - then make up the difference with savings?

I'm assuming I could not use a 'construction loan' because the terms are 'cash'; is a loan possible?

really don't have much knowledge about how to do this (obvious huh!) - but I am sooo in love with this property! and I have much research to do yet on the house . . but . . if I can't come up w/ financing - there's nothing to research!

Really appreciate any help you can provide

Thanks so much

kelly

Wayne Brooks · Answer

The FHA 203k program is designed for this. Essentially, you can borrow purchase price and repair costs, with a certain down payment. The repair work must be done by a licensed contractor. The seller Might consider an offer like this at this point. Talk to listing agent. You didn't say what/how much the needs in repairs. If you can mtg other property, combined with cash, that is an option if it's enough to also do the repairs.

Wayne Brooks · Answer

Sorry, "as it is NOT finanable as is".

Sharon Vornholt · Answer

Kelly - I have to wonder if this is really a good deal if it has been sitting there for 200 days. You might want to spring for an appraisal and a home inspection on this one. Sharon

Kelly G. · Answer

Thanks Wayne - guess I mis-understood a 'hard money loan' - thought it would be more like cash . . . have a much better idea of what I need to do . . . I think . . have to mull it over . . . really appreciate your comments and time - to all! Kelly I'll be monitoring if anyone else has thoughts! please chime in . . .

Wayne Brooks · Answer

Yes, a cash offer is always stronger. BUT using hard money is NOT the same as cash. POF for cash would be just that. Make absolutely, positively sure a hard money lender (HML) won't back out before you sign a contract with no financing contingency. HML rates vary from 10% with 2 points to 18% and 5. With 50% of you own cash in though, you might get the better rate and terms. Some will require Minimum 6 or 12 mo.s interest, even if you pay it back early. Make sure when you can refinance in 6 mo.s, whether it's at a percentage(65-80%) of Value, or of Your Purchase Price.

Kelly G. · Answer

anybody still monitoring? First - let's assume that after a walk-through w/ contractor and maybe appraisal - all looks good (reasonable repairs - good appraisal) . . . So . . . is it true that I would be more likely to get my offer accepted on a 'cash' offer vs a loan - even if it were an owner-occupied fha 203 loan? If so - and I'm thinking this would be true - let's say I take a mortgage out on my house = $100k; and get a hard-money loan for say - $100k - what is this likely to cost me over - say 8 months? I'm thinking I get the house fixed and take out a conventional to pay us back! I'm also thinking - since the house is large, on 10 ac - with a guest house - an appraisal = $400k does not seem unreasonable. - but let's say $350k to be safe. Like I said - I've never been good at the financing side - have a good eye and can fix almost anything to high end on a quarter! (not a dime! - chuckle) Thanks for your help! Kelly

Kelly G. · Answer

wow! hey - thanks everyone for your comments! I DO need to get a contractor out there ASAP - and talk to the listing agent. I did a very quick walk through (now wish I had spent more time); the last owners (who lost the house) took 'everything'! - sinks, stove, dishwasher, furnace!, water heater! Structurally - the house seems fine - built in '98. Cabinets, floors, walls, windows all in good shape. I don't know why at least 2 previous offers fell through - yes - have much research to do!! although I'm told that because this is in a small town, the other offers were likely from folks looking for a second house and didn't want the repairs. I did notice the windows in the guest house have broken seals (dual pane w/ moisture inside) - did not notice this on the main house. It is on a well and septic - need info there too! I am willing to put in a little $$ to find out what's really up. Posted these finance questions as this is generally my weakest area of knowledge. And, as I said, I don't really have $200k laying around, but could probably muster it if I had to - though probably not very smart! Again - really appreciate your input! Kelly

Thomas Fortune · Answer

Hey Page - Would you mind posting a link or other info regarding the Wells Fargo rehab loan? I know there are many rehab loan options that will cover cosmetic repairs, but i'm wondering if this program you mentioned will cover other structural repairs that typically make a property "cash only" (like the OP mentioned). Thanks!

Wayne Brooks · Answer

They advertised it as cash since it is financable AS IS, and would have rather had a cash offer. But, after this amount of time they may be willing to look at a 203K type offer, IF you get pre approved. Ask the listing agent. How bad of a condition is it in?

Page Huyette · Answer

Wells Fargo also offers a rehab loan that will loan 75% of ARV if you can do the repairs and purchase the property for that amount, with 25% down. This is similar to a 203K but without PMI if you can come up with the down. I would get a licensed contractor to take a good look at it before you even make an offer and look into financing, as it sounds like there could be more work than you might want to take on.