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HoneyB123

First Timer Looking For Direction

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I've been here working on repairing my credit since my BK7 six years ago and I've achieved all my modest financial goals but one: becoming a homeowner. I'm low income, but I also live where there are affordable homes. My ideal scenario, I think, would be to buy an older home with good bones that needs renovation. I've researched Fannie Mae Homestyle Loans a bit and I will have saved more than the required 5% by September, but it seems more complicated than applying for a traditional mortgage. So many questions.

 

Does anyone have experience with Homestyle Loans? If so, how do you find lenders/realtors/contractors who are experienced with the process?

 

Is it harder in general to get financing for loans under $100,000?

 

Am I crazy to go the renovation route as a first time home buyer? I like things the way they used to be built with hardwood floors and solid craftsmanship, but I don't want to get in over my head either.

 

What should I be considering that I don't know about yet because I've never done this before?

 

My FICO scores range from 706-734 and my DTI is 16%. My income is around $35,000 and I'm looking at homes priced from $50-60,000 and assuming up to $25,000 in renovations. All advice appreciated. Thank you!

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I can't comment on the Homestyle program or its implications, but in regard to buying a house that needs renovation...

 

Unless you have extensive experience with renovation and lots of DIY skills I would stay away from anything that requires more than cosmetic updates that you can do over time (paint, carpet, etc.). 

 

If the house requires extensive (electrical, plumbing, structural and/or similar work plus it's ugly in its current form) your $25k will blow away in about 5 minutes.  No one wants to live in a house that's barely habitable that they can't afford to finish!  Major renovation is not for the timid and inexperienced, and initial budget estimates are often revised upward by 100% or more.

 

I personally wouldn't have an issue purchasing something that needs paint, flooring, cabinet refacing, etc., but I wouldn't go beyond a needier home... but that's just me.  

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Just now, IndyPoolPlayer said:

low income + fixer upper + contractors = The Money Pit

 

Agree with CV and add this - don't go by what you see on the TV shows or This Old House. They usually have six figure budgets.

That should be budget constrained buyer + fixer upper + indecisive homeowner = The money pit

 

I am the contractor and watch people go cheap just to have to redo stuff the right way. Then they slow down the job because they can't pick stuff out, then the job needs to change because of what they finally decide on, blows budgets every time. On top of it they like to ignore stuff that doesn't make the house pretty.  Maam you really should budget for replacing that old furnace. No its working were going to leave it, we need the money for granite counter tops. 2 months later OMG!!! my heats out I don't have any money left please help me!!!

 

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7 hours ago, oldblue said:

That should be budget constrained buyer + fixer upper + indecisive homeowner = The money pit

 

I am the contractor and watch people go cheap just to have to redo stuff the right way. Then they slow down the job because they can't pick stuff out, then the job needs to change because of what they finally decide on, blows budgets every time. On top of it they like to ignore stuff that doesn't make the house pretty.  Maam you really should budget for replacing that old furnace. No its working were going to leave it, we need the money for granite counter tops. 2 months later OMG!!! my heats out I don't have any money left please help me!!!

 

Since you are a contractor...I'm looking at a place that needs the kitchen and two bathrooms completely renovated. My best friend is a house painter and her husband is a handyman and they've spent the last year renovating an income property. Between the three of us I think we can handle flooring and cosmetic issues. I would be happy rescuing old cabinetry from the Habitat ReStore and getting butcher block counters from Ikea. My ultimate luxury would be an old claw foot tub, so I'm not expecting to end up with an HGTV dream house. The Homestyle loan requires you to come in with contractor bids and determines the loan amount as purchase + renovation costs and contingency. When you're done, hopefully there is instant equity and this also appeals to me.

 

So, am I delusional to consider this?

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1 hour ago, HoneyB123 said:

So, am I delusional to consider this?

YES.

1 hour ago, HoneyB123 said:

My best friend is a house painter and her husband is a handyman and they've spent the last year renovating an income property. Between the three of us I think we can handle flooring and cosmetic issues.

And ruin a great friendship in the process. They are renovating hoping to turn a profit.  Doing it to help someone out gets old FAST.  Do NOT kid yourself that this will be a fun and invigorating project.  It won't.  As bad as you think it is going to be there are days you will wish it was that good.  

1 hour ago, HoneyB123 said:

.I'm looking at a place that needs the kitchen and two bathrooms completely renovated.

NONE of this is flooring and painting.  The kitchen and bathroom are two of the most important rooms in a home and can cost you the most to renovate.  Plumbing and electricity is a major issue.  

 

I would reconsider this plan.  Yes, you would have to wait a little longer to get a home but not having it go bad on you costing even more money making you regret the entire process is worth it.

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1 hour ago, CreditSucksNot said:

YES.

And ruin a great friendship in the process. They are renovating hoping to turn a profit.  Doing it to help someone out gets old FAST.  Do NOT kid yourself that this will be a fun and invigorating project.  It won't.  As bad as you think it is going to be there are days you will wish it was that good.  

NONE of this is flooring and painting.  The kitchen and bathroom are two of the most important rooms in a home and can cost you the most to renovate.  Plumbing and electricity is a major issue.  

 

I would reconsider this plan.  Yes, you would have to wait a little longer to get a home but not having it go bad on you costing even more money making you regret the entire process is worth it.

Thank you for being candid. I don't think it will take me longer to buy a house that isn't a fixer upper, but I like things the way I like them and I thought being involved in the fixing would be more rewarding than settling for someone else's vision and making changes over time. Maybe not.

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2 hours ago, HoneyB123 said:

I like things the way I like them

When I bought my house I made a list of what was most important.  For me since I LOVE to cook a great kitchen was VERY important.  I think a master bedroom should be a retreat so a good one with a great bath (stand up shower and garden tub) was next, and a good central area for a large screen TV and group/family time was third.  The rest:  meh. 

 

If you do this and get a great agent you should have no difficulty finding something in your price range pretty darn close to what  you want that only requires minor changes to be that dream home.  Keep in mind that the vision changes over time and paint, carpet and minor remodeling is great.  An entire construction redo will rob you of your sanity and all your money.

Edited by CreditSucksNot

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7 hours ago, HoneyB123 said:

Thank you for being candid. I don't think it will take me longer to buy a house that isn't a fixer upper, but I like things the way I like them and I thought being involved in the fixing would be more rewarding than settling for someone else's vision and making changes over time. Maybe not.

Keep the scope of required renovations in perspective.  Purely cosmetic items like colors/surfaces often aren't that big of a deal, and can be done in manageable pieces as the budget permits.

 

If the place looks like a crack den,  has a leaky roof, and/or has an awkward layout that makes you aspire to reposition walls, RUN - do not walk - away.

 

With that said, I have never looked at a previously-owned home that was exactly what I wanted.  Our current home has seen numerous cosmetic upgrades for our own enjoyment.

 

No matter what, you still need to be prepared for surprises.  We gambled that we could get by with a circa-1993 HVAC system for our limited intended ownership window, but three years in we lost the ~$10,000 bet.

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