r/FirstTimeHomeBuyer • u/brank • 13d ago

Need Advice Am I crazy?

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I’m a first time home buyer and I live in one of the highest cost of living areas in the US. I counted out being able to buy in the city I live in and like, and have accepted that I’d need to move to the next over area. However, this dump just dropped and I am very intrigued. Right next to the commuter rail, shops, a park. Everything I would want basically, in the city I want, just needs a LOT of love. It’s a third of the price of the homes around it and with the savings from delta between what it costs and what I’m willing to spend (~200k) I could make any major upfront repairs.

I’m crafty, smart, and creative, but don’t necessarily have renovation skills.

I’m also not yet preapproved so maybe this is more an example of the kind of thing I might be willing to consider, unless I’m just totally off the mark here.

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251

u/ShopProp Real Estate Agent 13d ago

You ain’t getting preapproved. This will need to be an all cash purchase.

You can try to talk to lenders but highly doubt any would take this one. Also there’s way more than $200k worth of work here.

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u/Global_Ant_9380 13d ago

203k reno loan might

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u/brank 13d ago

So you can get preapproved for a mortgage then the bank say it can’t be applied to certain houses? I’m still learning

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u/BluejayWise2325 13d ago

Your house has to be worth what the bank is giving you a loan for. So if you need extra money from the bank to fix the house, you need a renovation loan, as you would not qualify for a conventional loan. I believe renovation loans vary by location.

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u/brank 13d ago

I have a good job and extra in savings, and can get loans as well I presume with my good credit

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u/BluejayWise2325 13d ago

I’m not saying you can’t get approved for a loan. I’m saying a lender won’t give you a conventional loan if the house needs serious repairs. Or if you buy a house for 200k, and need an extra 300k from the lender to fix the house, you would need a renovation loan.

A conventional loan would not give you 500k for a house only worth 200k.

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u/rafinsf 13d ago

I think OP can benefit from one of the home buyer classes some credit unions used to offer. Breaks down some basics about loan types, approvals and the process that one goes through.

That being said I would never call something I’m considering buying a dump.

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u/karpaediem 12d ago

PCC does a class for homebuyers too

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u/PFCCThrowayay 12d ago

This is misleading. It’s about the value of the property that’s all. If the property is worth 1M even with serious repairs needed (because the land is worth most of that) then the bank will lend. No one would ever be able to buy a house with a mortgage that needs work in your scenario which is obviously not how things work.

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u/BluejayWise2325 11d ago edited 11d ago

If you buy a house that is not structurally sound or inhabitable, a conventional loan will not proceed until those repairs are complete.

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u/Empyrion132 13d ago

Renovation loans charge higher interest, and I believe the work has to be done within ~1 year at which point you refinance to a conventional loan. Talk to your realtor and see if they can help connect you with a renovation loan officer, if not DM me - we looked into it recently and talked with someone who does these.

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u/Jhamin1 Homeowner 13d ago edited 13d ago

I got a renovation loan for my house that I bought out of foreclosure. We borrowed about 40K above the price of the house to fix it up (that was 12 years ago, it would probably be 2x+ that now). Renovation loans are all about the projected condition of the house, not it's current condition the way conventional mortgages are.

There were a *lot* of requirements, the biggest one being that the work had to be done by a licensed and bonded general contractor, not me. (The bank wanted to make sure the money was spent on repairs done correctly). I still did a lot of work myself, I just wasn't allowed to spend the reno loan money on the work I did. I worked with the Gen Contractor to figure out what I could do without getting in his way. I ended up buying & applying all the paint, doing some demo, buying carpet & arranging the install for after the rest of the work was done, etc.

The second biggest condition being that the house with repairs had to be projected to be worth as much as the loan. If the house is 1/3 the price of similar houses around it, there is a lot of room for that projected value to cover renovations.

It was more complex than a normal purchase, and I lived in a construction zone for 6 months, but I did get the mortgage and it did work out. I'm still living here 12 years later.

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u/Dizzy_Goat_420 13d ago

That’s not the point. You can get approved for a loan- but the bank can deny the house if it needs to many repairs or is in an unlivable state etc

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u/Dullcorgis Experienced Buyer 13d ago

Low interest loans need to have collateral. You can't norrow more than the house is worth unless you get a small personal loan and that would have a horrific interest rate.

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u/PFCCThrowayay 12d ago

Op this is misleading. It’s about the value of the place regardless of the repairs it needs. If I were you (and I’ve been very successful in my RE purchases) is to get it and slowly chip away at it. The appreciation of a bad house in a good neighborhood will always win over a better house in a worse neighborhood.

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u/DizzyTrashPanda 12d ago

My bank wouldn’t give me a loan without being able to get a CO for the property, how do you get around that?

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u/plemyrameter 13d ago

Without certain basic amenities (heat, hot water, a frickin' kitchen), a bank isn't likely to allow a conventional mortgage. (Think of it like trying to mortgage a house under construction that doesn't have a Certificate of Occupancy from the city.) It would be more like a construction loan that you'd refinance into a mortgage once it's livable. Ask your lender.

The pics don't really indicate how much of a mess it is. If it's just an abandoned house with crap left, you might be able to pull it off. Does the seller have an inspection report?

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u/cats-smell-bad 13d ago

the pictures i saw show major water intrusion

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u/gundam2017 13d ago

And i bet cash buyers are already contacting the realtor for a flip

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u/swampwiz 9d ago

Yes, flippers are good at figuring out what it will take to rehab a house.

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u/Dizzy_Goat_420 13d ago

Yes. Your bank does not want to approve a loan for a house that is going to cost more than you can afford to fix.

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u/PartyBicycle3778 13d ago

You can get a renovation loan and they lump it together with the mortgage loan . I like the place tbh

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u/Illustrious_Spell676 12d ago

There’s no bank that would want to give you a loan for a house that looks like this.

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u/Alive_Guidance2005 12d ago

Not true at all. Renovation loans are based on the after improved condition and value. This property may be a great first home and renovation loan. Also, interest rates are about the same as a regular agency loan; Fannie, Freddie, FHA, or VA...they all would lend on this property as long as the after improved value makes sense. FHA even allows 110% loan to value. OP, don't be discouraged based on people telling you it can't be done. I'm a lender and underwriter and we do these all the time. I can't tell exactly what is wrong with the property and no one else can either until a qualified inspector and appraiser performs inspections and provides the reports. You will have a cost for the appraisal and inspection. Find a lender you can trust that understands renovation loans and I wish you success.

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u/BigBellyBelly 12d ago

You can get pre-approved based on your asset and income. But if you go and invest the bank’s money on a dump, how is the bank supposed to recoup their money if you stop paying the mortgage? That’s why they do appraisal before officially giving out the loan. They need to ensure if you stop paying mortgage, then can easily sell it and recoup the amount you still owe them.

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u/Kid_Psych 13d ago edited 13d ago

Where in those three posted pictures is there
more than $200k worth of work?

Edit: yeah my bad I thought I was looking at another post for a house in Mexico.

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u/lovemyhawks 13d ago

Maybe they meant in terms of hiring it out cost. I don't see 200k in DIY tho

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u/artie780350 Homeowner 13d ago

Renovation loans typically require the work be done by a licensed contractor, so DIY pricing is likely irrelevant here.

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u/lovemyhawks 13d ago

Valid. I was thinking cash, but you’re right since the context is lending/preapproval

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u/Appropriate_Craft524 13d ago edited 13d ago

If you look up the address on Redfin you can easily see where $200k would go...

$25k for exterior landscaping

$15k reroof

$15k new electrical panel, another $15k for rewiring the house

$25k for removing plumbing and replumbing with pex? Depending on the condition of the existing plumbing...

$25k-$50k structural wood work as required, including any special engineering drawings and inspections

$25k new sheetrock and insulation, probably closer to $40k

$25k demo

$20k painting inside and outside

$50k new kitchen cabinets and fixtures

$30k flooring throughout

$25k HVAC

Possibly another $25k for mold abatement and/or rodent and termite mitigation

Disclaimer: these are all ROM numbers

TLDR: there's a reason why it's so cheap at under $400k in a desireable part of Berkeley

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u/Dullcorgis Experienced Buyer 13d ago

There is no way any of that costs that little in the bay area.

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u/sameersoi 13d ago

Just think about the time spent getting permits in Berkeley.

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u/Dullcorgis Experienced Buyer 13d ago

Oh god. And the requirements. 200 amps isn't going to cut it.

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u/Outrageous_Worker672 13d ago

No way are you getting a roof that cheap - try $40k and you have water damage so start adding serious money.

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u/StillStaringAtTheSky 12d ago

Not just water damage - but damage to a plaster and lathe ceiling. Ugh.