Something just doesn’t feel right, need advice.

[Anjelica Allen]

Greetings everyone,

So I'm one week to closing on my first home. I'm purchasing a Duplex with a 203k FHA rehab loan (Property 275k).

1. The first unit needs repairs, nothing major (Estimate 27k). Second unit is occupied with tenants that are refusing to pay market value, they are paying 950, when the average rent is 1200+. I don’t like the idea of market value terms as rent prices and incomes haven’t matched in years. Seller claims they will give notice to vacate upon closing, which begs to questions does this fall on me now?

2. Another issue I'm having is that my lender requested me to pay the full year of home insurance before closing, even tho payments after closing will continue to go to escrow from mortgage payments for the year I just paid for. Lender stated that everything about my property is expensive, and 203k FHA loan doesn't allow/ or have grants available. Why not? Why do I have to pay this now, instead of paying it during closing with loan?

3. Lastly the biggest issue of it all is that the Loan Estimate had me closing at -8k, which was great, because I could keep my reserves to apply to the principle and or unexpected costs. But I received my Closing Disclosure document to sign and now its saying 18k to close, which wouldn’t leave me with a lot of cushion afterwards. 

With all the documents to sign, legalize language, and seller pressuring to close. Something just doesn’t sit right with me and I don’t know if it’s something I’m missing or I’m about to take on a problem. I’ve saved for so long to get to this point, that I’m worried after all this, I may have to walk away.

[Crystal Smith]

Quote from @Anjelica Allen:

Greetings everyone,

So I'm one week to closing on my first home. I'm purchasing a Duplex with a 203k FHA rehab loan (Property 275k).

1. The first unit needs repairs, nothing major (Estimate 27k). Second unit is occupied with tenants that are refusing to pay market value, they are paying 950, when the average rent is 1200+. I don’t like the idea of market value terms as rent prices and incomes haven’t matched in years. Seller claims they will give notice to vacate upon closing, which begs to questions does this fall on me now?

2. Another issue I'm having is that my lender requested me to pay the full year of home insurance before closing, even tho payments after closing will continue to go to escrow from mortgage payments for the year I just paid for. Lender stated that everything about my property is expensive, and 203k FHA loan doesn't allow/ or have grants available. Why not? Why do I have to pay this now, instead of paying it during closing with loan?

3. Lastly the biggest issue of it all is that the Loan Estimate had me closing at -8k, which was great, because I could keep my reserves to apply to the principle and or unexpected costs. But I received my Closing Disclosure document to sign and now its saying 18k to close, which wouldn’t leave me with a lot of cushion afterwards. 

With all the documents to sign, legalize language, and seller pressuring to close. Something just doesn’t sit right with me and I don’t know if it’s something I’m missing or I’m about to take on a problem. I’ve saved for so long to get to this point, that I’m worried after all this, I may have to walk away.

 1. When you purchase an income producing property, you are also essentially purchasing the contracts/leases that go with that property.  Unless your contract has it in writing that the property will be delivered vacant.  If it's not in writing then the existing tenants will be your tenants once you close and it will be your responsibility to send them a notice that you or your company are the new owners and you do not intent to renew their lease. You must become familiar with the Chicago Residential Tenant Landlord Ordinance before you do this.  The ordinance specifies how much notice you must give a tenant depending on how long they have lived in the property.  

2. There are usually 2 choices for paying your homeowners insurance. Choice 1- PrePay before closing. Choice 2- Provide your insurance company with all of the relevant information, including the date of closing, your lender & the title company where you will be closing. The company will then send a bill to the title company that is applied at closing. It actually doesn't make much of a difference since the $ will be coming out of your pocket no matter what. Regarding grants- Most grants are available for downpayment and closing costs assistance depending on location of the property, credit, income level.... It's usually not a function of whether or not the loan is an FHA 203k.

3. I don't have enough information to provide you with any feedback on your loan estimate other than to compare line by line the original loan estimate versus what they are giving you now.