Question QUESTION: I want to buy this 1090 sq. ft. home that needs repairs(some major--floor, plumbing, roof, sheetrocking, and leveling) and termite treatment. The house is a 1930 home that is made of that type of wood that is in strips and very thick. The contractor came by to check it out and said it is very repairable. The size of the lot is 75 x100 and is in a very well-established neighborhood--a lot of older people live there) It is also 60% walkable, which is good. The reason I'm asking for advice is that the bank loan officer tells me we can get a home equity loan for 6.94% interest. And the offering price is $31,000. I live in Brownsville,Texas and our house is paid off and is worth $85,000. I don't know what other information you would need to tell me if it's a good thing or a bad thing that we're doing. Also, our annual income is $75.000 and the only real debts we have is the car payments--$354 and $511. We don't have any credit card debt. I would appreciate a response asap.
ANSWER: Thanks for your question, and my apology for the delayed response. The rate on the home equity loan seems higher than the national average, however, Texas does have limitations and restrictions on borrowing against your home, so that may be the norm. Are you planning on renting out the property? What would be the market rent, and how much will it cost to make the property repairable? You'd need to take those numbers, and calculate how long it would take to recoup the repair costs. Additionally, you'd want to look at a worst case scenario - Can you cover the payments without a tenant? or if the tenant doesn't pay? I'd also look at the appreciation/depreciation values in the area.
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QUESTION: I've dismissed the thought of buying this particular property as the contractor informed us that we would just be better off knocking it down because it was in dire need of repairs. Now I'm looking at another house that has a value of $55k but is selling for $68k. It is a lovely home that doesn't seem to need repairs. It was built in the 60s, but has been well-maintained. It has storm shutters, a little workshop in the bank, and the size of the home is 1060 with a 1-car garage and laundry area within the house. It has 2 bedrooms, and a small kitchen. The size of the lot is 6300 sq.ft. There is one slight thing that bothers me-it is in a ah risk flood zone area. The main street that leads to this house floods every single time we have flooding in the city. And it is one of the last areas to drain when the flooding is over. They've been working on that street installing some kind of draining system, but the rainy weather hasn't started yet to check it. From what I found out from the neighbor, flood insurance is required in that area. Should I just walk away or grab the offer?
Answer Thanks for your follow up - Although the price seems attractive, you'd want to a) factor in the cost for annual flood insurance b) CAREFULLY think about owning a property in a potential disaster area
Flood insurance isn't going to replace things like family photos, etc., and if you were going to have a tenant in there, it may not cover the cost of relocating them
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