Put 20% Down But No Money For Improvements

AutoBot · ‎11-15-2016

Let's say I am looking to purchase a home with the following FHA loan info?

20% Down Option

Purchase Price: $210,000

Interest Rate: 3.625%

Monthly Payment $999

Putting the full 20% down gives keeps me out of mortgage insurance for 11 years and a low payment. Now the question I need wisdom on. This home really needs about $20,000 worth of updates, which I don't have because I put 20% down. If I only put 10% down I can do the improvements but I am now paying $3,300 extra in closing costs for MI premium as well as an additional $237 per month including the MI. What are my options?

10% Down Option

Purchase Price: $210,000

Interest Rate: 3.625%

FHA Upfront MIP: $3,300

Monthly Payment $1,236

Anonymous · ‎11-15-2016

Have you already put in an offer on the property or are you running numbers to determine scenarios you could be in?

In my area one emerging trend is for sellers to offer at or slightly above asking price but have to buyer cover the upfront MIP in addition to other closing costs. This minimizes out of pocket costs for the buyer but (depending of total costs) may not increase the monthly payment that much and leave you with spare cash.

Another thing to consider is do all the repairs need to be made before move in. If the items came up on inspection ask the seller to take care of all or a few. If it is more of an as is situation, can the repairs be prioritized? New paint/drywall repair (cheaper fix which helps with overall presentation & making a place yours) or furnace (more expensive but being warm in winter is awesome) over new kitchen items which are functional but may not be in the best state but still functional or to taste.

AutoBot · ‎11-15-2016

At this point just running numbers. The mecahnicals (water heater, A/C, Furnace) would definitely need to be looked at during the inspection. The home is 15 years old so original items are getting to their end of useful life. The main thing is the outside A/C is original and in rough shape. It may work, but this is a 10 SEER unit so it's a POS in terms of efficiency. I am really talking about more cosmetic things like:

- Replace A/C unit

- New flooring throughout

- New paint throughout

- Kitchen Cabinets

- Kitchen Counters

This home was a rental for a long time and shows a lot of cosmetic issues in the kitchen.

StartingOver10 · ‎11-15-2016

@AutoBot wrote:
Let's say I am looking to purchase a home with the following FHA loan info?

20% Down Option
Purchase Price: $210,000
Interest Rate: 3.625%
Monthly Payment $999

Putting the full 20% down gives keeps me out of mortgage insurance for 11 years and a low payment. Now the question I need wisdom on. This home really needs about $20,000 worth of updates, which I don't have because I put 20% down. If I only put 10% down I can do the improvements but I am now paying $3,300 extra in closing costs for MI premium as well as an additional $237 per month including the MI. What are my options?

10% Down Option
Purchase Price: $210,000
Interest Rate: 3.625%
FHA Upfront MIP: $3,300
Monthly Payment $1,236

^^^The information is not correct. If you put down 20% on a FHA loan - you still have UFMIP + monthly MI for 11 years just like you do when you put down 10% on a FHA financed mortgage loan.

HOWEVER, if you put down 20% on a conventional mortgage loan (not FHA) then you do not have PMI and you do not have anything similar to the UFMIP that you have on FHA loans.

If I were in your shoes, with your scores, I would put down the 10% and get the FHA loan and do the repairs if you can't get the seller to pay for the repairs. JMO. If your scores were a bit higher (at least 680 mid score), then I would go with a conventional mortgage loan and put down the 20% and have no MI at all. It is all based on what your interest rate will be with each program.