This will not disqualify you for the $8,000 first time buyer's tax credit. Assuming you qualify on the income side and you have not owned a home within the last 3 years - you are fine.
As far as your comment on a construction loan to fix it, you would actually finance the purchase of the home and the rehab of the home with a 203k loan. That is a fancy name for FHA's rehab loan. You would not need to roll that into a conventional loan. It's already set up to do both the purchase and the rehab in one loan. Lets review each step of the 203k - it sounds hard, but with an experienced lender it's not.
The first step is to have your 203k lender walk thru the property with you and determine with you what work has to be done, and then what addtional work you want done. We recommend you use an FHA licensed Cost Consultant as well. They will charge you between $500 - $700 for this. The cost consultant we always use charges $550 on jobs under $35,000. It is not absolutely necessary on jobs under $35,000, but it is required on jobs over that amount. If you will not be using a cost consultant, then I recommend a walk thru with the contractor and lender together. If you are doing the work yourself, then just you and the lender. You should do this before you make an offer on the home. You want to be sure the financing will not be an issue.
Assuming the deal is accepted by the selling side and the scope of the project is determined between you and your contractor, you both would sign a bid/contract detailing what work is being done, what the cost of the materials are, and what the cost of the labor will be. It has to be spelled out. The 203k program also allows the homeowner to allocate money for appliances - including washer/dryer etc. If you are getting appliances you would need a detailed printout from the retail store where you would be purchasing those appliances. At this time there are some other forms signed by the borrower and contractor basically saying the same thing - I'm using you as my contractor and my contractor is charging me this amount.
While all this is going on the appaisals need to be ordered. The appraiser has to complete two appraisals - the as is value at purchase and then the value of the property once the work is completed. The appraiser we order from charges $600 combined for both appraisals. This also includes his reinspections determining that the work has been completed.
Please note in all FHA 203k transactions (regular or streamline) it could be up to 30 days after the closing before the contractor receives the first dispursement to start on the project! The contractor would not receive the last dispursement until the work has been approved by the homeowner and the investor.
If you need our help, please don't hesitate to contact me. We are in your area all the time and would be delighted to serve as your 203k lender.
Senior Vice President
3933 75th St
Aurora, IL 60504
FIrst, you need an approved contractor. The contractor must be familiar with the program and maintain certain insurance policies such as general liability and workers' comp. You can act as a contractor but must purchase these insurance policies. All sub-contractors must be licensed if necessary. Plumbers, electricians and furnace/air-conditioner techs must be licensed in Illinois.
As for the money, the contractor will itemize the cost of repairs and once the repairs are made the contractor will request the money from the lender. The lender will release funds after there is proof the reparis meet FHA criteria. For big jobs Draw Inspections (periodic payments from the lender) may be required, it depends on the lender. To ensure the repairs meet FHA criteria an FHA Fee Inspector will inspect the work, at your expense, and submit paperwork and photos to the lender. For large jobs that require Draw Inspections you may need more than one inspection.
Without restating everything already said... You could do this as either a construction loan or a renovation loan (FHA or a conventional without the upfront mortgage insurance premium or PMI the FHA loan will have even if you're putting 20% down) depending on how much you had to put down (and your reasons for your down payment amount will determine what route you'll want to go as well).
The renovation loan would get you closed in about the same amount of time however the construction loan won't convert to a perm loan until your work is complete (the costs for each are in the same ball park actually) which would push you past your Nov 30th date whereas the renovation loan funds upfront then work is dispersed post-close. If the tax credit is extended as rumor states, your timeline will be greatly increased.
By now, you've probaly secured your financing and are well on your way to closing or in your home, but for other prospective buyers, this will be helpful information.
Feel free to reach out if you have additional questions
Renovation & Construction/Perm Specialist
As long as you close (get the deed in your name) by November 30, assuming everything else is in order you should be eligible for the tax credit. Talk to a tax professional about that to be sure. You can get the details about the 203k loan on the HUD website http://www.hud.gov
Nike Fasanya, CMC
Marvel Ventures Mortgage, Inc
You really do not have to go to all that trouble. Your bank is either not approved to do FHA loans, don't want to be bothered with a 203k rehab (FHA) loan, or your Loan Officer is not trained to do them.
Their suggestion will cost you far more money, time, effort and emotional trauma than is necessary.
I am a Mortgage Broker and have helped clients like you achieve their goals since 19987. I am also an FHA certified underwriter, but own my own little company, and have access to enough Lenders to ensure that your loan has the highest chances of getting approved.
Please look me up at http://www.marvelmortgage.com or call my office at (773) 779-1190. I would love to take a look at your situation personally, and feel quite confident that I can assist you.
I look forward to hearing from you.
Nike Fasanya, CMC
What kind of construction loan are you looking at?
I have some programs that you may be interested in and then we can roll you into a conventional loan when you are done.
Ardain Mortgage Corp