203K loan for renovation?

[Badfish740]

Since there seem to be a lot of hearth.com'ers with old homes, I wonder if anyone has ever used a 203K loan to renovate? 203K loans are often used to buy fixer uppers-the idea is you borrow enough to buy the home plus renovate it. The amount you can borrow is based on what the home will be worth based on neighborhood comps, etc...when it's done. You can also use the 203K to borrow money to renovate your home and then refinance the finished product into a new 30 year fixed rate loan. We bought our house in 2008 near the top of the market, so at this point, we don't have a lot of equity, but we're outgrowing the house and would like to add on. We're planning on adding a 3rd bedroom and a 2nd bathroom, making the house a 3 bed/2 bath, which, given the direction of real estate values in our area, should pay off in the end. We feel it's a good solution for us because we don't want to move, but we need more room. Anyone else have experience with these?

 

[drz1050]

Be careful about going underwater, and weigh the rate they offer against what your $ is currently making in mutual funds and whatnot.

They can definitely be a good way to go if your market can support it.

 

[Ashful]

I looked into 203k's at one time, when we were trying to buy a 1740's abandoned grist mill. Can't say I'm an expert on them, just learned the basics, as you already have.

Where are you located? I have a friend who's a mortgage broker in PA, and may be able to offer advice. On a loosely related note, he just refinanced me at 2.75% fixed rate!

 

[Badfish740]

Be careful about going underwater, and weigh the rate they offer against what your $ is currently making in mutual funds and whatnot. They can definitely be a good way to go if your market can support it.

No desire to go underwater-been there done that during the housing crisis Currently our mortgage balance is about $220K and the house is worth about $240K in today's market. I'm looking to spend as little as possible to add the third bedroom and second bathroom along with some updates to the existing kitchen and bathroom. Our neighborhood actually benefited in a way from the mortgage meltdown in that there were at least three foreclosures that were quickly snapped up, completely remodeled, and flipped at a decent price within a year, so there are some good comps to go on.

I looked into 203k's at one time, when we were trying to buy a 1740's abandoned grist mill. Can't say I'm an expert on them, just learned the basics, as you already have.

Where are you located? I have a friend who's a mortgage broker in PA, and may be able to offer advice. On a loosely related note, he just refinanced me at 2.75% fixed rate!

I'm just over the river in Hunterdon County-care to PM me his contact info?

 

[BIGDADDY]

I would suggest talking to a lender or two or three and get their advice on what may be your best avenue to accomplish your desires. I think so much changes in the financial arena, its probably difficult for them to keep up. Who knows, there may be something better available then what you are thinking of doing.
Best of luck in getting that 3rd bedroom and second bath!!

 

[Swedishchef]

In Canada we don't have a 203K plan per say. Our similar plan would be a HELOC - Home Equity Line of Credit. Most banks will lend you up to 80% of your equity as a LOC. SO if your house is appraised at $100 000, you have $0 mortgage, they'll give you an $80 000 LOC at the interest of a mortgage. You pay interest on the outstanding balance and can lock it in as a mortgage at any point.

Good luck with the renovations Badfish! Sounds like a fun plan!

Andrew

 

[Ashful]

In Canada we don't have a 203K plan per say. Our similar plan would be a HELOC - Home Equity Line of Credit. Most banks will lend you up to 80% of your equity as a LOC. SO if your house is appraised at $100 000, you have $0 mortgage, they'll give you an $80 000 LOC at the interest of a mortgage. You pay interest on the outstanding balance and can lock it in as a mortgage at any point.

We have HELOC's here, too. The difference is that a HELOC is based on the equity you have in your home today, which might be a problem in badfish's situation with low equity. The 203k is a loan based on the forecast value of your home AFTER improvements, and so it offers more room for one with limited equity in their property.

 

[Swedishchef]

We have HELOC's here, too. The difference is that a HELOC is based on the equity you have in your home today, which might be a problem in badfish's situation with low equity. The 203k is a loan based on the forecast value of your home AFTER improvements, and so it offers more room for one with limited equity in their property.

What some people here do is talk to the appraiser..and some can get the appraiser to appraise what your house is worth AFTER renovations, therefore, you get a larger mortgage/HELOC

 

[ironpony]

Just thinking out loud here, and don't want to be negative Nellie but maybe it is time to sell and move on?? not much equity there and if you spend XX and add that to the mortgage and raise the value XX, I do not see much gain. Might actually loose some equity. Sometimes we have to cut our losses and make a change. Will the area support the higher value? Also in your favor , will a 3 bed 2 bath be much more desirable? Again just thinking out loud, I know it is a sensitive subject.

 

[Badfish740]

Just thinking out loud here, and don't want to be negative Nellie but maybe it is time to sell and move on?? not much equity there and if you spend XX and add that to the mortgage and raise the value XX, I do not see much gain. Might actually loose some equity. Sometimes we have to cut our losses and make a change. Will the area support the higher value? Also in your favor , will a 3 bed 2 bath be much more desirable? Again just thinking out loud, I know it is a sensitive subject.

Those are all valid considerations, but here is how I arrived at this:

Our house is fairly atypical for the neighborhood. Most of the homes are at least 3 bedrooms and 2 bathrooms (there are also a fair amount of 4 bedrooms with 2 to 2-1/2 baths) whereas we are 2 bedroom/1 bathroom. It's a subdivision that was built in the mid to late 1960s and I would guess that most of the homes started out like mine. We bought the house from an older woman who had lived there for 30 years and never had any children, so she never had any reason to add on. It was the cheapest option at the time we were in the market-the stereotypical "Worst house on the nicest block." Right now, the value of our house is about $240K-the three and four bedroom houses are selling/have sold for anywhere from $300-320K. The comps are there, otherwise the lender wouldn't have any incentive to write the loan.

Also, we like the neighborhood, our kids have friends here, schools are good, we started our life as a family here (my wife I bought when we were first married) and it's a relatively convenient location in terms of proximity to family, jobs, etc...so there is really is no compelling reason to pick up and move somewhere else. Sure I'd love more land, but in NJ that costs serious $$$ so I'd be perfectly happy with my 1/4 acre if it just had one more bedroom and bathroom. We're just in a tough spot because we want to expand our home but don't have the cash nor the equity to tap into to do it.

 

[Ashful]

I suspect ironpony might chit a brick if he became aware of the property tax situation in NJ. I know many paying $20k/year type numbers for their typical suburban lots. The difference in property taxes between PA and NJ is just astounding.

 

[Badfish740]

I suspect ironpony might chit a brick if he became aware of the property tax situation in NJ. I know many paying $20k/year type numbers for their typical suburban lots. The difference in property taxes between PA and NJ is just astounding.

We are bad but not that bad. Right now they're soaking me for $7500 a year-I'm guessing that will go to about $8500 a year with the improvements. What's nice is that even though the mortgage balance will substantially increase, going from a 6.125% interest rate (which really wasn't bad for 2008) to 3.5-4.0% will keep the payment almost exactly the same.

 

[Ashful]

We are bad but not that bad. Right now they're soaking me for $7500 a year-I'm guessing that will go to about $8500 a year with the improvements. What's nice is that even though the mortgage balance will substantially increase, going from a 6.125% interest rate (which really wasn't bad for 2008) to 3.5-4.0% will keep the payment almost exactly the same.

Your taxes are much better than some parts of NJ, but you're still paying more than me, and I'm in 8160 sq.ft. on 4 acres 30 mi. north of Philly.

Talk to Craig about the mortgage. He has twice gotten me rates 0.25% lower than the best I could find anywhere else. As I mentioned before, we just refinanced with him two weeks ago at 2.75% fixed rate, 15 years.

 

[Badfish740]

Our town made some controversial decisions in the late '80s/early '90s and took on a lot of debt. We had a lot of open space and people were flocking to this part of Hunterdon County. The administration at the time decided to issue bonds to buy up the land before it could be sold off to developers, the theory being that if it were developed we would need to build roads, sewers, water (we have a municipal water utility), and possible a second elementary school as well as add on to the middle school. The debate still rages today whether or not the expanded tax base would have made up for the cost, but all in all, it's nice to live in a small rural town. I'd rather pay $8500 a year here than $8500 a year in some of the more crowded/urbanized areas 30 miles east of here.

 

[Swedishchef]

Our town made some controversial decisions in the late '80s/early '90s and took on a lot of debt. We had a lot of open space and people were flocking to this part of Hunterdon County. The administration at the time decided to issue bonds to buy up the land before it could be sold off to developers, the theory being that if it were developed we would need to build roads, sewers, water (we have a municipal water utility), and possible a second elementary school as well as add on to the middle school. The debate still rages today whether or not the expanded tax base would have made up for the cost, but all in all, it's nice to live in a small rural town. I'd rather pay $8500 a year here than $8500 a year in some of the more crowded/urbanized areas 30 miles east of here.

If I had to pay $8500 a year for town taxes, I'd have a stroke.

I guess there's no magic solution eh? I pay $2000 in property tax but $20 000 in income tax.

Andrew

 

[Ashful]

This year I paid $8400 in property taxes, and well over $150,000 in income taxes. Unfortunately, this is a contest where the winners are losers... and vice versa.

 

[firefighterjake]

All I can say is Yikes . . . and Yowsers . . . on the property tax rates . . . income tax rates . . . and the mortgages.

Just paid off our mortgage . . . a little under $600 per month . . . $69,000 home. Last time we were giving some thought to selling and building we were told it was worth about $180,000. I think I am getting old -- homes and cars all seem expensive to me now.

 

[Swedishchef]

This year I paid $8400 in property taxes, and well over $150,000 in income taxes. Unfortunately, this is a contest where the winners are losers... and vice versa.

Right. But considering your tax bracket, I presume you have a good paying job. On the other hand, my marginal tax bracket is MUCH higher than yours will ever be.

Jake: congrats on getting the house paid off! That's a great goal!

On another note, cars are not expensive. A Mazda protege 15 years ago was the same price then as a Mazda 3 is today (or damn close). But yeah, houses are a lot more now than 15 years ago.

Andrew

 

[drz1050]

$2370 in taxes in Upstate NY.. it certainly helps that Saratoga County has way lower taxes than Albany.. they also give me a nice break for being a combat veteran.

School taxes are over 3x what city taxes are.

 

[Swedishchef]

School taxes?! I need to start another thread with the topic of taxes...

Andrew

 

[Badfish740]

School taxes?! I need to start another thread with the topic of taxes...

Yes, before we open a whole can 'o worms I had a good conversation with a 203K consultant yesterday who walked me through the process of getting the funds into escrow, inspecting the work, initiating a draw to the contractor, etc... I'm starting to get excited about the other things I'll finally be able to do like replace the cobbled together, leaky, uninsulated ductwork with a well sealed and insulated efficient system that's designed to work with the wood furnace, and air seal the exterior of the house, insulate with foam board, etc... The goal being to make a cord of wood last twice as long and to run the AC half as much!

 

[jharkin]

Right now they're soaking me for $7500 a year-I'm guessing that will go to about $8500 a year with the improvements.

Wow! I thought my taxes where bad... I pay $6400 on about 325k of assessed value.

This year I paid $8400 in property taxes, and well over $150,000 in income taxes. Unfortunately, this is a contest where the winners are losers... and vice versa.

Man I am in the wrong business! I thought you where an EE, not a stockbroker......

 

[ironpony]

I suspect ironpony might chit a brick if he became aware of the property tax situation in NJ. I know many paying $20k/year type numbers for their typical suburban lots. The difference in property taxes between PA and NJ is just astounding.

Born and raised in NY, got the hell out ASAP. 29 yrs to many.

 

[ironpony]

Your taxes are much better than some parts of NJ, but you're still paying more than me, and I'm in 8160 sq.ft. on 4 acres 30 mi. north of Philly.

Talk to Craig about the mortgage. He has twice gotten me rates 0.25% lower than the best I could find anywhere else. As I mentioned before, we just refinanced with him two weeks ago at 2.75% fixed rate, 15 years.

Your taxes are much better than some parts of NJ, but you're still paying more than me, and I'm in 8160 sq.ft. on 4 acres 30 mi. north of Philly.

Talk to Craig about the mortgage. He has twice gotten me rates 0.25% lower than the best I could find anywhere else. As I mentioned before, we just refinanced with him two weeks ago at 2.75% fixed rate, 15 years.

Your taxes are much better than some parts of NJ, but you're still paying more than me, and I'm in 8160 sq.ft. on 4 acres 30 mi. north of Philly.

Talk to Craig about the mortgage. He has twice gotten me rates 0.25% lower than the best I could find anywhere else. As I mentioned before, we just refinanced with him two weeks ago at 2.75% fixed rate, 15 years.

7000 sq ft on 4 acres 4000 yr ohio 490,000 value 4000 sq ft st Croix 1 acre 800 yr. 600,000 value

 

[ironpony]

Those are all valid considerations, but here is how I arrived at this:

Our house is fairly atypical for the neighborhood. Most of the homes are at least 3 bedrooms and 2 bathrooms (there are also a fair amount of 4 bedrooms with 2 to 2-1/2 baths) whereas we are 2 bedroom/1 bathroom. It's a subdivision that was built in the mid to late 1960s and I would guess that most of the homes started out like mine. We bought the house from an older woman who had lived there for 30 years and never had any children, so she never had any reason to add on. It was the cheapest option at the time we were in the market-the stereotypical "Worst house on the nicest block." Right now, the value of our house is about $240K-the three and four bedroom houses are selling/have sold for anywhere from $300-320K. The comps are there, otherwise the lender wouldn't have any incentive to write the loan.

Also, we like the neighborhood, our kids have friends here, schools are good, we started our life as a family here (my wife I bought when we were first married) and it's a relatively convenient location in terms of proximity to family, jobs, etc...so there is really is no compelling reason to pick up and move somewhere else. Sure I'd love more land, but in NJ that costs serious $$$ so I'd be perfectly happy with my 1/4 acre if it just had one more bedroom and bathroom. We're just in a tough spot because we want to expand our home but don't have the cash nor the equity to tap into to do it.

you have valid reasons and have thought it thru, good luck with your endeavor. the pricing seems to be there, that would be my concern.