Is this a good strategy to buy a house I cannot afford?

Question

Hello everyone,

I was recently offered a job in Cambridge MA - my wife is adamant we live in a nice home in a good school district. The problem is meeting those criteria in an area like Cambridge (if you do not want a long commute) means you are looking at 500-700k houses at a minimum. Here is what I want to do. All numbers are pulled out of thin air - please let me know if I am being unrealistic!

Find a dilapidated cat-pee smelling home with a gutted kitchen (just as an example) that is listed for around 200k. Home should be so bad that banks are not offering traditional financing.

Finance 300k from a hard money lender (or other private lender) to purchase the home and have 100k for repairs. Getting the money may cost about 60k (20%) upfront, which I have.

Repair the home and do a cash-out refinance. I am eligible for a VA home loan with 0% down so I can pull out the full value. Hopefully it would appraise over 500k. I do not think I can afford a 500k mortgage so although it would be nice to cash-out the full amount and put it towards my next investment I think I might have to refinance just the 300k + lender fees + misc costs to have an affordable mortgage.

I am fairly new to all this but my readings on the forums have led me to believe this can work. Any thoughts?

Jay Hinrichs · Answer

@Aaron Canciani  as a stepping stone would a condo or townhouse be something you can get in your price point.

I am with @Bryan Otteson  on this one... in the last go around when I would get pre approvals to review from buyers.. if they were approved for 400k they would buy a 400k house.. not a 250k.. folks just maxed out their credit.. and sometimes its best not to do that..

I for one being a SF Bay Area born and raised can sympathize with you on price point . Were I lived and grew up in Palo Alto houses got to 400k by mid 80's.. and high tech was not what it is today.. So it was very common for us to spend 50 to 60% of our gross income on house payment alone.

400k homes with a beat up Camry in the driveway  LOL>

But on the flip side the Prime areas of America stretching to get that home you can live in for years and own for years I think is worth the risk... I pretty much owe my whole career to the 4 homes In bought in the Silicon Valley and the subsequent dramatic rise in values then selling and making 500k tax free gains.. talk about a BRRRR strategy of course it took 30 years to play out and I did not realize it at the time..

Stephen Brown · Answer

If you can go with the FHA 203k loan that would be the best option Aaron. Just a word of warning, the type home you are looking for is the holy grail of REI in this area of MA at this moment in time. That's where I see this plan falling down. You will need to work with a good real estate agent that can find off market deals and you will need to be able to move quickly with a cash offer to seal the deal. And most dumps touching 1500 sq ft are running $400k at the moment. Please don't take this as discouragement as I am just trying to inform you of what I have seen in this area. Maybe a location that isn't too far from red line, good schools that you can afford would be a better option? Arlington, Belmont, Watertown, Wilmington etc. Best of luck.

Account Closed · Answer

@Aaron Canciani  One thing to keep in mind is hard money for primary is a big no-no.

Thomas S. · Answer

Your best option would be to rent not buy. It is far less expensive and you will be able to afford the house your wife wants.

Home ownership is a lifestyle choice and is greatly overrated.

Nick Stoddard · Answer

owner occupant

Nick Stoddard · Answer

As others have suggested, the 203k is your best option. If you find a hud home that's a new listing, you will have a twenty day head start over the flippers since you will be an owner accurate.

Bryan O. · Answer

@Aaron Canciani there are a lot of great ideas already from people telling you how to get into a property that you will lose. If you cannot afford a $500k mortgage, then DON'T GET INTO A $500K PROPERTY. Finding cheap, fixing up, then over leveraging to the point you can't afford is a horrible idea.

Tell your wife that it will take a few years and if she wants the best of the best to start building income streams that can afford it and step down the life style. Quit spending money, take less and smaller vacations, smaller birthdays, whatever.

Justin Fernandez · Answer

The VA loan has an option that will assist with rolling in the rehab with a fixer upper. So if you can I would avoid the FHA if youre going to occupy and have not maxed out the loan.  I would also check to see if the 417K cutouff is still in effect, but you can get the jumbo as well. I would consult with a professional that specializes in VA loans. Maybe House hack the first year or two, since the VA loan has higher upper limits for 2-4 units. Thanks for your service.

Victor N. · Answer

@Aaron Canciani a house for $200k in Cambridge??? That's not going to happen any time soon. I lived in Boston for a few years and the area is very expensive. I just did a quick check and the cheapest property in Cambridge listed on the MLS is a 412 sqft 1BR, 1BA condo for $299k.

Cambridge is a totally different ball game so listen to the advice above of those who live there.

Somerville is a nice town next to Cambridge but the prices are also very high, maybe slightly lower. You might have to move much farther away from Boston to find something affordable.

Good luck!

Kerry Baird · Answer

There may not be houses like this on the MLS, but perhaps you can drive for dollars and look for a vacant or troubled house to mail to.  Or you can send handwritten letters to expired listings, probate houses, pre-foreclosure properties, or properties with more than 4 units (as they are hard to get conventional loans on).  Perhaps you could mail older owners or houses held a very long time.  I think being creative, while possible in every market, will take time and a lot of marketing focus...so many not be the way for you to go.  However, I thought I'd add in what I would do in that circumstance.  Also, a VA loan can go up to 4 units...perhaps you can find a plex unit that would work better than a single family residence.  Any way it goes, I wish you great success on your quest.

Is this a good strategy to buy a house I cannot afford?

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