Whats it going to cost me?
Let's say you find a home for $500,000, but you know it's going to need some fixing up.
Your first step is to get a contractor out to the house to work up a bid for you. The contractor tells you that you'll need $100,000 worth of funds to remodel and repair, and for some fancy upgrades for the wife.
That means that you are looking at a $600,000 investment.
Your next step is to get an appraiser out to the property. The appraiser will walk the property, review the contractor's bid, and look at comps of finsihed homes in the neighborhood. Well lets say after he does that, he tells you that the home will be worth $650,000 after it's remodeled! That's great news, you'll be walking into the property with equity!
The next step is to determine your down payment. We'll calculate your down payment based on purchase price of the $500,000 home + the $100,000 remodel, which equals $600,000. Your required down payment is 5% or $30,000.
Keep in mind that these loans are a bit more expensive than the traditional loan at close, so we suggest being prepared for say another 3-4% in closing costs (instead of the normal 2-3%).
Let's say then, for example, that your closing costs come out to 4% of $500,000, or $20,000.
Your cash-to-close then would be $30,000 for the down payment + $20,000 for the closing costs = $60,000 out of pocket.
When all is said and done, you'll have a brand new home with an appraised value of $650,000, with a loan of $570,000, and it's cost you $50,000 in cash out of pocket.
Remember, this is napkin math! For an analysis of your particular scenario, give us a call.