How does equity work ?

Asked by Whatdidido, Cuyahoga County, OH Sat Jun 16, 2012

I am in the process of buying a home. The bank is having difficulty communicating with the wholesale place that has the FHA 203k part of the loan which is American Financial Resource. It will be 45 days since signing the loan papers this Wednesday. There are NO problems with the contractor or his creditials, I have a great credit score, very long term job stability, and there is just NO reason for this to happen. I don't want the owners to become frustrated as they are moving as well and this is holding them up, the house was appraised for a lot more (paid appraisor), does that mean that there is equity built up in the house that I could use o do the remodeling instead and drop the outside company for the 203k part to end this nightmare or just move in the house "as is". It's just updating that I am doing. Thanks

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Tari Torch S…, Agent, Woodmere, OH
Sat Jun 16, 2012
That would be one way. FHA 203K loans take awhile and the dot every "i" and cross every "t" and send people out to the house a million times! If you can afford to do that, and you can show that you have an appraisal for higher, and you are actually buying the house with already-built-in equity, you should be able to do what you are suggesting. What needs repaired? If you do a standard FHA loan, they will require that all major mechanicals, etc., are in working order, etc. (they protect themselves and buyers) If you have enough equity to cover what the costs are that you are adding into your 203K, then yes. Ask a lender (or your lender). If you would like the name(s) of some lenders who can handle these things, let me know. You can use a Home Equity Line of Credit if you have equity of any value.

Tari Sweeney
RE/MAX Traditions

216-319-4493
tarits@adelphia.net
http://www.tarisellsrealestate.com
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Dan Tabit, Agent, Issaquah, WA
Sat Jun 16, 2012
Whatdidido,
In most cases with a 203K, the appraisal will be done on the finished value of the home. In other words, if you are buying for $200,000 and putting $35,000 worth of work into the house the finished value needs to be at least $235,000 for a lender to consider it. Truthfully, in this example, I would hope the finished value would be much more to make it worth your while to oversee the work.
203K loans require that all the work get done (or run through) a licensed contractors books. I've heard of people with construction experience who assist the contractor and save some of the money, but it still needs to go through them.
Even if in my example above, the home appraised at $300,000 finished with only $35,000 in improvements, the bank will lend in relation to the lesser of the purchase price or appraised value. You will still need down payment and not get any cash back.
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