Expert: Jim Root - 7/2/2009

Question
QUESTION: We want to buy this 1949 home that is selling for $38000, but needs repairs costing $17000.  The thing is that the bank will approve a home equity loan.(Our house is paid off and is valued at $85000.)  We also have a loan for almost $8000 at 14.49% interest.  The bank officer says we could combine the two loans for 6.945% interest.  The personal loan was used to purchase a small property that sold for $26,000.  We didn't have all the money so we took out the balance which was $10,000.  If we combine both loans will we be able to sell the property later because the loan is with the home equity loan?  What if we decide to build, will we be able to do so, or will we have to pay off the entire $62,000 loan?  How does this work?  What if we want to sell later the property we are interested in buying?  And this particular property is for my daughter to live while she finishes college.  She has too many pets to live in any other place.  Most of the places don't even allow pets.  I will not be renting though.  So when she's done with college and hopefully finds a good job, she can move and I can either rent or sell.  Please advise asap as I really need to know because there are other interested buyers.

ANSWER: ESTHER--

You didn't send your inquiry to me, and whoever you sent it to directed it  the QUESTION POOL. It's been there for nearly a week and no-one's answered it, so I'll give it a "whirl!"

Frankly,I understand why no one has attempted to answer you--your inquiry is so full of information that we don't need and doesn't have some data we do need to give you good answers and solid advice.It "rambles" I'm sorry, but "I calls 'em like I sees 'em!"

I'll TRY to pick out from between the "Miscellaneous Confusing/Unnecessary Information," your TRUE NEEDS: I may or may not be successful, but I'll try to help!

Taking out a Combined Loan that eliminates the $80000 loan @ 14.49% and using your $85,000 valued Home as Security/Collateral for that new Loan @ 6.945% in an amount sufficient to buy the $38,000 property you're interested in PLUS the $17,000 repairs it needs makes sense to me.

The lower interest rate saves you money,using your current home to secure the mortgage, will give you the property you're wanting to buy FREE & CLEAR TITLE to it.

As for selling later? You  can sell any property you own! Those properties with liens against them, like Mortgages or Home Equity Loans, 2nd Mortgages, etc, can be sold as long as they are sold for a sufficient amount to clear the liens at Closing.

And you can build on any of your properties, mortgaged with the permission of the Mortgage Lender and proper Building Permits. Unmortgaged, Not Liened, Owned "Free & Clear" Properties can be built upon as long as City/County Planning, Zoning & Building Codes will allow!

PLEASE get a Realtor with the Professional Designation ABR behind his/her name to HELP you with this. (NOT  the Agent who's representing the Seller of the  $38,000/$17,000 Fixer-Upper, he/she's NOT "on your side!") ABR stands for "Accredited Buyer's Agent" and has been EARNED by education/training and experience in representing BUYERS) And if you have any more questions for me, I won't send them to the QUESTION POOL. I'll answer 'em right away.

I may make comments if you "Ramble on" about your Daughter's "Too many Pets," your plans to "Not be Renting," her Search for a "Good Job" after College, and the feelings of local Landlords  who "Don't even allow Pets," so try to use the KISS method "Keep it Specific/Simple!" :-)


--JIM ROOT

---------- FOLLOW-UP ----------

QUESTION: Thank you so much for taking the time to answer my question.  I ;had already given up.  Now the opportunity arises that we can build on the land as well, which means we can borrow the $52,000 plus the outstanding loan of almost $8000.  Do you think this is a better option than the fixer upper?  The house will be a small house with a resaca view. I would appreciate it asap as time is of the essence. Please, your honest opinion and I will take it very seriously.

Answer

Hi Esther--

Welcome back! Have your Banker Mortgage your Home that you say's worth approx.$85,000 and you own "Free & Clear." Have that Mortgage cover a Loan @ 6.945% sufficient to pay off the almost $8000 loan you have @ 14.49% and your equity in CASH. That Mortgage will be secured by your current "$85,000 Home!" So then you can buy EITHER the Fixer-Upper OR build the small house without having to Mortgage either.

Which is the better option, buying the Fixer-Upper OR building the Small House? If you're sure that $17,000 will cover the rehabilitation of the Fixer-Upper, it's probably the better choice.
Building even a small house requires City/County-approved Plans/Specs and Permits for everything, hiring a General Contractor
and his/her Sub-Contractors, and watching/waiting as they put it all together & make it ready to have a Final Inspection and Certificate of Occupancy by the City/County Building  Department.

This'll cost you more than $17,000 and your Daughter will be out of College, looking for that good job before the small house is ready for her to live in! :-)

Without my inspecting the Fixer-Upper and reviewing the Plans/Specs and Permit requirements, as well as ensuring that building on the lot is OK by local Zoning Codes, its' hard for me to choose one Option over  another--but from what you've told me, I think I'd go for the Fixer-Upper!

You did a good job using the KISS method; but I still recommend you get an ABR Realtor to help you make the right decision!

GOOD LUCK!

--JIM