Q: For the past year I have been looking at a home in my neighborhood that went into foreclosure. It is now being sold by the bank.
I have seen the property and in its current condition, it is just a framed out shell. But my family and I immediately fell in love with it. It was new construction and the builders ran out of money to complete the work.
We have really been trying to figure out how we could possibly get this home given our current financial state. The price of the home is currently $59,000. After doing research I also discovered that upon completion, the intended price of the home was to be around $550,000. The home has 5 bedrooms, 4 bathrooms, a huge master bedroom and enormous kitchen.
I know that it would be at least another 16 months before we emerge from bankruptcy and I fear that either it will be sold or somehow taken off of the market. As fate would have I now found a job for $90,000 per year plus bonuses.
Since, I started work in May, I have saved $7,000. I only spend what is absolutely necessary. I feel that we are going to get that home and I know I still have a ways to go to reach the purchase price of $59,000 but I will get there. I do realize it is currently just a shell and I will have to do plenty of work, but I am skilled and have plenty of family and friends that are contractors that are willing to help.
I guess I’m wondering if there is any advice you have for me since I now am earning money and paying off my debts and saving again.
A: I’m glad you’ve found a shell of a home you want to buy. The problem you’re going to have is getting a mortgage if you haven’t been out of bankruptcy for at least 3 to 5 years, unless you plan to pay for the home in cash. You most likely will have a hard time getting any kind of financing to purchase the home in its current unbuilt condition, and even if you pay cash for the purchase, you’ll have a very difficult time getting a construction loan to finish the house. You also may need to get out of bankruptcy before you’d be able to get a loan.
While it’s unlikely you can find a lender to assist you, you may be able to raise the money to purchase the home from family members. While I’d normally suggest seller financing, which is generally a long shot, it’s unlikely to work for you since this is a foreclosure, and the seller is a bank.
While the price seems cheap, it’s only a deal if it is the right home for you at the right price, on the right terms and at the right time for you.
Here are a couple of things you should consider.
First of all, you need to determine what it will cost to finish the home. While you only see the shell of a home, you need to have a good handle on all of the expenses that it will take to finish the framing, roofing, plumbing, electrical work and installation of finishes to the home. You may think the price for the land and the current framing is a good deal, but you may find that the cost to finish the home will break your budget.
Secondly, if you do find the time, labor and money to finish the home, will you be able to afford to live in and maintain the home? Some people forget to consider that they may find a bargain in real estate and once they move into the “bargain” they need to deal with the utility costs of a large home, the increased maintenance costs, and the higher real estate taxes and insurance costs.
While you now have a good income, you should make sure that you don’t overextend yourself in this project. You’re going through bankruptcy and undertaking a real estate construction project at the same time may be a bit much.
You need to make sure you’ve considered all of your options and obligations for the years to come. It’s great that you’re saving money, but you need to decide whether you will need that money for college savings for your children or your retirement nest egg.
If, after considering all that, you still want to press ahead, I’d spend some time chatting with lenders who can help you figure out if there’s a way you can make this work out. More importantly, be sure to work with the lender to figure out whether owning this home will fit your long term financial obligations and budget.
If you find that owning the home meets your long term financial goals then you’ll want to talk to some local banks in your area that offer portfolio loans and may be willing to give you a loan, if not now, perhaps in the near future. Your local bank may be slightly more flexible with lending requirements than some of the national lenders.
Good luck, and let me know what happens.