Mortgage questions - buying a house (Bank owned/REO)

If I was single, had health insurance and could manage a saw without removing fingers, I'd do the same thing Curtis. That place in Marysville looks fantastic. You could probably cut a deal with some crafty types and offer free rooms for folks who are willing to put in labor.

I've got a buddy who's doing that. His family owns a farm that has several outbuildings. They let some folks live there rent-free in exchange for labor. It's working out so far.

I'm a bit envious of the ability to live that lifestyle. I'm certainly happy with my life and happy with my wife, but she wants a nice house of her own before I go and buy a project house. She doesn't want to live in a project house, and as someone who grew up like that, I can't blame her.

mtn wrote: I'm still not seeing your logic.

People rarely do My logic is strange.

Long story short, I refuse to do a traditional "buy what you can afford and keep a job for 30 years so you can pay for it" plan. It is not my way. I understand that 90% of the world does it, I just refuse. Patently refuse. Too much in my life changes. If I get offered a job in NYC doing theater and want to sell in 3 years and the market has tanked, I'm upside down. If I get laid off, I'm screwed and desperate to find another job immediately. I can always find an income, but if its a job I hate, then I hate life.

I live small and simple. Getting a house that is the most I can afford is not something that would make me happy.

Now... what you are suggesting - getting a 100k house and finance half - is not a far stretch from my current desires and I will look into it, but its still stretching my comfort zone. The original idea of $150k is just not on my radar.

pheller wrote: If I was single, had health insurance and could manage a saw without removing fingers, I'd do the same thing Curtis. That place in Marysville looks fantastic. You could probably cut a deal with some crafty types and offer free rooms for folks who are willing to put in labor.

Brilliant idea. I like it. I actually have a few friends that would probably jump at that.

I'm a bit envious of the ability to live that lifestyle. I'm certainly happy with my life and happy with my wife, but she wants a nice house of her own before I go and buy a project house.

Truth be told, my wife was the same. All things considered, I'd rather still be married and have the added stress of the luxuries I didn't need.. The married part was a greater benefit than the luxuries irked me.

If it weren't for my chronic automotive addiction, I'd probably be living in a camper on a beach in CA and bartending on the weekends.

curtis73 wrote:

mtn wrote: I'm still not seeing your logic.

People rarely do My logic is strange. Long story short, I refuse to do a traditional "buy what you can afford and keep a job for 30 years so you can pay for it" plan. It is not my way. I understand that 90% of the world does it, I just refuse. Patently refuse. Too much in my life changes. If I get offered a job in NYC doing theater and want to sell in 3 years and the market has tanked, I'm upside down. If I get laid off, I'm screwed and desperate to find another job immediately. I can always find an income, but if its a job I hate, then I hate life. I live small and simple. Getting a house that is the most I can afford is not something that would make me happy. Now... what you are suggesting - getting a 100k house and finance half - is not a far stretch from my current desires and I will look into it, but its still stretching my comfort zone. The original idea of $150k is just not on my radar.

No, I get that logic--trust me, I'm all for not being house poor. But you're so far from being house poor even on the $150k house. Up your housing budget if only to get a mortgage. They don't like giving small mortgages. Hell, put $20k down and then on your first payment put another $20k to principal. That's one way to get a very small mortgage balance.

mtn wrote: No, I get that logic--trust me, I'm all for not being house poor. But you're so far from being house poor even on the $150k house. Up your housing budget if only to get a mortgage. They don't like giving small mortgages. Hell, put $20k down and then on your first payment put another $20k to principal. That's one way to get a very small mortgage balance.

Dammit... you're convincing me in with logic and math

With that much cash you could probably buy a lot and build a pretty decent pole barn. Devote however much of the building to common garage duty, and convert the rest to living space. I'm sure with your skillset, you could come up with some interesting layouts to utilize the space creatively. If your cash reserves aren't quite enough to do everything you want, then take out a small personal loan (using your fab credit score) to finish the build. Maybe a 10-15k personal loan would feel like less of an anchor than a typical mortgage.

I'm really jealous of your situation Curtis. Don't change your plan. The kind of financial freedom you are working to preserve is awesome. The 20% rule you've set is perfect.

STM317 wrote: With that much cash you could probably buy a lot and build a pretty decent pole barn. Devote however much of the building to common garage duty, and convert the rest to living space. I'm sure with your skillset, you could come up with some interesting layouts to utilize the space creatively. If your cash reserves aren't quite enough to do everything you want, then take out a small personal loan (using your fab credit score) to finish the build. Maybe a 10-15k personal loan would feel like less of an anchor than a typical mortgage.

Land is pretty pricey around here. This is one of those areas where you can buy an acre with a fixer-upper house for the same price (or sometimes cheaper) than a vacant 1-acre lot.

Kinda like buying an LS1. If you buy the engine from a junkyard, its $1500... or you can buy a complete wrecked camaro for $1200 and get the engine, transmission, axle, seats, and scrap the rest with a little labor.

The other thing around here is getting around the zoning. Its not horrible, but finding zoning that allows living in a pole shed, garage, or even having a camper parked on your property can be tough. Not impossible, but that adds a whole slew of learning curve to my already fried brain, and will geographically limit me more than I am already. So your suggestion would be ideal for me, but it represents a ton more work and potential compromises for a modest uptick in benefit. Still on the radar, but I'm trying to stay realistic. Just getting a small house/large garage won't be a bad thing and will also maximize my resale marketability. What I REALLY want is to live in an old Home Depot or Bass Pro Shops, but it ain't happenin' until I win the Powerball.

I wish I could accurately describe my befuddlement. I am an intelligent, savvy guy. I can't make heads or tails of these things. You guys keep talking about PMIs and HDMIs and STDs and WTFs. I seriously just spent 45 minutes reading results on google for "wiki mortgage." I also googled USDA loans, FHA loans, HUD, and several other terms you have all used.

Can someone briefly outline what the different types of loans are? So far I understand the basics:

• traditional loans are pretty understandable. I understand LTV and PMI (that's mortgage insurance, right?) I also understand that an appraisal and inspection are required, so many of my fixer-uppers I've found won't qualify.

• FHA is where the government does the vetting and "instructs" the bank to loan me the money. In these cases I would pay both sides of the taxes, right? And if an FHA loan becomes foreclosed, it is a HUD case? That is to say "mortgage is to foreclosure as FHA loan is to HUD case"

• FHA 203(k) is an FHA loan that is written for more than the value of the purchase for repairs and renovations.

• USDA loans are kinda like FHA, but underwritten by the Dept of Agriculture for rural homes

Can someone look at my meager understanding of the above and correct it/expand on it, and maybe give me a little overview on what might disqualify a home (or me) from being eligible for them? I put in another call today to yet another lender who can maybe get me sifted through it, but I don't have high hopes.

And are there other loans that I should be considering?

OHSCrifle wrote: I'm really jealous of your situation Curtis. Don't change your plan. The kind of financial freedom you are working to preserve is awesome. The 20% rule you've set is perfect.

Thank you for the reinforcement. I didn't intend to incite jealousy I just figured I could be honest with you folks about my situation.

Curtis all loans have mortgage insurance, they just call it by different names.

Here are some general statements.

All loans require an appraisal to make sure the property is basically safe, sound, sanitary and is marketable. By that I mean can it be sold if you don't make your house payments.

FHA is mostly for people with low credit scores &/or who want to buy the most house (they will allow higher debt to income ratios). Their mortgage insurance is the most expensive there is.

VA is for Veterans. Their mortgage insurance is not all that expensive.

USDA is for loans outside a major metropolitan area and their mortgage insurance is the cheapest there is.

A conventional loan is basically anything that isn't one of the above.

In most parts of the country now, a foreclosure should be shied away from. Usually it's the property that had the problem not the buyer or the market. Also you buy them as-is where-is and if something goes wrong between the time you buy it and closing you still have to close.

Usually foreclosures are sold on a bid program and the person who gets it is the one who will pay the most so therefore most of the time they aren't good deals.

Because of the property is the problem issue foreclosures may have trouble being financed.

Like I said, these are general statements and in certain circumstances YMMV

carguy123 wrote: In most parts of the country now, a foreclosure should be shied away from. Usually it's the property that had the problem not the buyer or the market. Also you buy them as-is where-is and if something goes wrong between the time you buy it and closing you still have to close. Usually foreclosures are sold on a bid program and the person who gets it is the one who will pay the most so therefore most of the time they aren't good deals. Because of the property is the problem issue foreclosures may have trouble being financed.

My dad just closed on a foreclosure. Most of what you just said rang true--the one exception being that the buyer, not the property had issues. Which caused the property to have big issues.

My dad bid on it, bid more than the asking, had financing figured out well in advanced (I don't know the specifics, but he had a mortgage with about 50% down and cash backing up the other 50% "just in case"). And it helped that it's a vacation house so he didn't care about it being ready to live in.

EDIT: the downpaument is about 60% of the loan, and 50% of the price--he had to cover the difference in appraisal and bid price before financing could even be looked at.

Yeah, MTN when the Buyer is the one with the problem that changes everything. Florida, especially condos, still has a number of properties that the Buyers walked on and now they are having to be sold for present day values instead of the inflated ones pre-crash

Interesting tidbit - nationwide home prices have already exceeded pre-crash value numbers. Of course that is an national average so that means there are still pockets of lower prices.

carguy123 wrote: Interesting tidbit - nationwide home prices have already exceeded pre-crash value numbers. Of course that is an national average so that means there are still pockets of lower prices.

As someone about ready to buy a house, this worries me. I found a great place, but now I'm wishing I hadn't and could just hold out for another year.

In reply to Pheller:

It seems to me that mortgage rates are starting to climb ever so slightly vs when I bought a house 10 months ago. You could wait a year and see if home prices drop, but it's very possible that interest rates go up in that time too, which could negate some or all of the benefit of a price slump. Worst case for you would be to wait, and have the prices stay where they are and have rates increase as well.

The other big advantage to USDA, which isn't really of much interest to your circumstances, is that you can go as low as zero down payment. There's an income limit to qualify i think (if there is its pretty high though) as well as geographical restrictions. There's a website to go to and type in the address to see if it qualifies, which a lot of properties around here do.

I totally get what you're trying to do in terms of your financial situation with the house and would love to do the same as well if I were single (hmm, think theres a theme developing here lol). However, I think stepping up to the $100-120k range does open up a hell of a lot more options in this market.

I too had a hell of a time wrapping my head around all this mortgage stuff (still no expert by any stretch of the imagination, in case its not obvious ). It's just a lot of confusing jargon that's super dry and boring to boot.

In reply to Furious_E:

The various stock markets are similar. I've been following the market and studying it for a few years now and have a fairly good grasp on it, although not enough to explain it in layman terms.

There are rumblings about interest rates increasing (this era a "free money" has to come to an end at some point), which has the potential to have far reaching affects.

I totally understand where Curtis is coming from. It's the #1 reason why I stay in my house, despite its drawbacks in location from work and lack of garage/shop space. Right now, thanks to my house being paid-for, my financial "needs" are far less than my income. It's a nice, secure feeling to have.

carguy123 wrote: Curtis all loans have mortgage insurance, they just call it by different names. Here are some general statements. All loans require an appraisal to make sure the property is basically safe, sound, sanitary and is marketable. By that I mean can it be sold if you don't make your house payments. FHA is mostly for people with low credit scores &/or who want to buy the most house (they will allow higher debt to income ratios). Their mortgage insurance is the most expensive there is. VA is for Veterans. Their mortgage insurance is not all that expensive. USDA is for loans outside a major metropolitan area and their mortgage insurance is the cheapest there is. A conventional loan is basically anything that isn't one of the above. In most parts of the country now, a foreclosure should be shied away from. Usually it's the property that had the problem not the buyer or the market. Also you buy them as-is where-is and if something goes wrong between the time you buy it and closing you still have to close. Usually foreclosures are sold on a bid program and the person who gets it is the one who will pay the most so therefore most of the time they aren't good deals. Because of the property is the problem issue foreclosures may have trouble being financed. Like I said, these are general statements and in certain circumstances YMMV

Thank you for that clarification. I know you said YMMV, but this doesn't really cover things that may not pass inspection. I thought that was one of the things FHA covered - loans to buy and fix up properties.

I understand that a bank won't give you money on a house that is missing a furnace or plumbing, but I had always assumed there was a way to get money for "imperfect" houses.

This would, however, explain my "black hole" area where I either pay cash for a E36 M3-hole under $50k, or over-extend my comfort zone and jump to a 130k house just because it can get financed. That $60-120k zone is just a cluster of seemingly untouchable stuff.

For instance, the one HUD home I linked to. I scoured it for three hours one day. Aside from hideous decorating choices, the only thing I could find wrong was that someone stole 12' of copper plumbing from the basement. It would seriously take me 2 hours and $25 of materials to fix it, but I'm told that I would have to front the full cash price, have a licensed contractor fix it, then maybe in 6 months I could do a cash-out refi with hideous terms.

I'm half tempted to break in and fix the plumbing so I can get it inspected. (not really)

There are options for the ones like the missing copper house, but they can get expensive. You can get a higher interest loan for the full price, fix the stuff, then get a traditional mortgage. They're out there, but might be tough to wrap your head around. If you see it as a way to make it happen instead of getting stuck on the costs, it's an option.

A great argument against waiting is the economy. The economy is loving the concept of Trump.

There's been some legislation that has artificially held our economy back and Trump has said he's gong to work on those. If he really does what he says then you could see the economy boom. Interest rates are a reflection of the economy. Obviously the economy hasn't moved much in 8 years.

When rates are falling the economy is going down and people are holding onto their money. When rates are rising it's a sign the economy is doing better and people feel confident and therefore spend their money.

It's pretty much a given the Feds will raise the rates this month. How much is anyone's guess, but the Feds have much less impact upon the mortgage rates that does the economy.

We had much more activity and people made much more $$ on their homes when rates were 16% than when we've had 3% rates. A student of history can make a case that rates have been at 7% or greater for much longer than they've been below so that tells you that in all probability your interest rate will be double what it is today on the next house you buy should you stay the normal 3-7 years.

I am seeing predictions of over a 1% increase in rates in the next 12-16 months. IF things jump commensurate with the activity levels we've already seen after the inauguration then I can readily believe that.

curtis73 wrote: For instance, the one HUD home I linked to. I scoured it for three hours one day. Aside from hideous decorating choices, the only thing I could find wrong was that someone stole 12' of copper plumbing from the basement. It would seriously take me 2 hours and $25 of materials to fix it, but I'm told that I would have to front the full cash price, have a licensed contractor fix it, then *maybe* in 6 months I could do a cash-out refi with hideous terms. I'm half tempted to break in and fix the plumbing so I can get it inspected. (not really)

You MIGHT be able to approach something like that through a creative contract...

You could submit an offer, contingent on passing an inspection (which the seller would refuse to pay for), but include YOUR willingness to pay for repair of deficiencies PRIOR to closing (entirely at your expense).

This should meet the bank requirements. It would leave you potentially on the hook for the cost of repairs to a house that you do not own if the closing fell through for some reason, but it is probably a risk worth taking.

EDIT to my above posts on foreclosures: I said my dad's issue was the buyer. I meant the seller.

SVreX HUD won't allow anyone to do any work on the home prior to closing. There's the potential for unintentional liens and therefore they won't take that risk.

But I have seen just what you suggest done several times with homeowners, where the Buyer does work prior to closing so that financing can be approved. Unfortunately many of those time the Sellers have said "Thanks, now bugger off!" and the Buyer has lost their money & their time.

So the question is, would you be willing to take that risk? Is it a good risk or a bad risk? That depends upon the Seller and the market. I wouldn't do it.

BTW the inspection isn't what determines what work is needed on the property, it's the appraiser that determines that.

The inspection is what you do to see if you want the house with all the work needed. Fortunately it's not a common thing to see the inspection queer the deal.

As many houses as I've bought, as many as I've seen and as much as I know about construction I wrote a contract on a home that I thought was a doll house. The Seller was just finishing dolling it up to make it look good to make it easier to sell and it looked "Mahvelous!"

I didn't see anything major wrong at all, but when the inspector went in I found out the guy was covering up evidence of a fire and major foundation issues. When I approached him about it he said that he had terminal cancer so what was I going to do sue him?!

My first house was a HUD owned 3-family property- needed a lot of work.

As I recall, they received multiple bids, and accepted ours. I don't remember the details, but I know we had a 95% loan. Pretty sure it was a HUD loan.

Yes, when the property is too bad to meet lending standards they end up having to finance it themselves. Terms aren't as good as what you can get on the streets but you typically don't have to bring a bottle of Vaseline to the closing table.