East Bend is a no go.
In addition to the images I posted on my Facebook the home was in a state of disrepair that had our lender bracing himself. He politely informed Andy that the only way we'd get a loan for that house would be to try for a 203k Rehab Loan or owner financing.
The link above is to the HUD (Housing and Urban development) website if you'd like more information than what this blog provides. It explains the process of 203k loans in great detail.
After one is pre-approved for a loan, and an offer is agreed upon, he or she hires a housing inspector to make sure after the key is in hand, the evil roof monster isn't going to come and punch a hole in the roof... or a tree... or just a nice thunderstorm. This confirms the buyer's interest in purchasing the home.
When the buyer is indeed ready to progress in the home buying process, the Lender (bank, Quicken Loans, Wells Fargo etc.) sends out an appraiser at the cost of the homebuyer to study neighborhood statistics and compare home prices in the area as well as study the home and come up with an overall resale value (appraisal). The bank will only loan you up to the total appraisal value. If you're paying less than the appraisal value for the home, you have what is call equity. If the home is in a state of disrepair, the future home owner would have the ability to take out what is called a home equity loan in order to fund the repairs.
When the home is purchased at the appraisal value (aka no equity) many homeowners choose to apply for a rehab loan to try and raise the value of the home. To do the repairs and sell at the new appraised value is what is called flipping a house. Many investors will use personal funds for these repair but the average home buyer won't have an extra 30 grand laying around. If you do... kudos. If you don't... I'm pretty sure you're not unusual.
The normal 203k loans are the closest thing to a bank babysitting your repairs you can get. This process is not for a handyman, unless you're a certified contractor. Before the bank will even approve your loan, they send a representative to create a list of mandatory repairs and other desired changes (See Eligible Improvements and Required improvements in the HUD article) the home owner would like to have done. After they guarantee that they are willing to give you a loan by affirming that the repairs don't exceed your budget, a contractor must be hired to do each repair. The bank has to approve it and has to write a check for each repair for the contractor.
203K loans require a 3.5% downpayment on the total loan. Example: Your home costs 40k... and needs 30k in repairs. The total required downpayment is $2450... which is 3.5% of 70k.
According to the HUD website there is something called a Streamline 203k loan that can enable to the handyman to do his own repairs but it limits what you can do with it. HUD has created these limitations so that Average Joe cannot take out 30k in rehabilitation money, never improve the value of his home, and instead pull a Charlie Sheen complete with prostitutes and cocaine binge.
We may consider a streamline 203k loan in the event that we find a home that isn't in need of severe repairs. This is a great idea for a handy, first time home buying couple that want low mortgage payments and the ability to create their own space. It allows creativity and would be a fun project. If you're not so handy, it may be easier to buy a home where all you have to do is paint the walls the color you want and pay that 30k-50k extra. Less risk involved that way.
The owners of East Bend (an estate sale) offered owner financing but the more we negotiated the messier it got. As a first time homebuyer myself, I would prefer a clean transaction. The more contractual and definitive the relationship the better. So goodbye 2400 square feet.... and good riddance.
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