Congrats on getting another one in the books.

We’re shooting for two a month in 2010…even if we come up a bit short, we’re hoping to hit our 20 rehabs. This would be a 50% increase over this year, which will be a little tougher, but hopefully is doable barring any unforeseen issues…

It appraised for $114K, which is crazy. We tried our typical sweet-talking of the appraiser and it must have worked, as I was assuming the appraisal was going to come back around $100-105K. We were actually really concerned about the financing going through, even though they finance up to 110% of the appraised value (I still didn’t think it would appraise for enough).

Also, the appraiser was hand-selected by NACA (the lending program). So, it’s quite possible that the appraiser was trying really hard to get the appraisal high enough.

The nice thing is that we just got The Red Garage House (in the same subdivision) under contract for $103K, so this will be a great comp to ensure that one appraises. We actually lost our first contract on that one because one of the appraisals came in very low.

As for the lender paying rehab costs, I submit a spreadsheet before the purchase listing the rehab items and requested amounts. Then, during rehab, I let them know when I’m ready for an inspection. The inspector comes out, looks at the house, and checks off the things that were completed. They deposit the money for the completed items in my checking account the next day. I can get inspections as often as I like, but I tend to just do them once at the end of the project (I just pay cash out-of-pocket during the rehab for my contractors and materials). During big rehabs, I might ask for two inspections, just so the lender can see the progress we’re making.

Also, do you have a drawing account with your lender as far as rehab cost, or do they just chunk it out to you? I’ve always been a cash buyer and rehabber and wondered how the lenders might treat this situation.

Jingle

Always happy to share more details!

1. I’m not sure exactly what the question is here…but it sounds like you’re asking how the buyer was able to get $21K in closing costs and then use that money to buy the loan down? Is that correct? Assuming so, the answer is that this is specifically how the loan program that the buyers used (NACA) is intended to work. Check out http://www.naca.com. They work with some of the big lenders (this deal was funded by Bank of America), and the program is set up such that the seller pays extraordinary high closing costs, most of which go to buy the loan interest rate down. So, the purchase offer is generally higher than the list price on these deals. The house is then appraised like any other loan, but NACA is willing to finance up to 110% of the appraised value, since the appraisal oftentimes comes in lower than the purchase offer (which again, is generally higher than list price).

Does that make sense? If not, let me know where I lost you, and I’m happy to try to explain a bit better.

By the way, the HUD is very simple. The purchase price (line 401) was $113,500. Settlement charges to seller (line 502) was $28,375, which included the $21,565 in seller paid closing costs and $6810 in agent commissions. Loan payoff (line 504) was $48,153. Then there was $25 in seller closing costs and $708.99 in pro-rated property taxes.

$113,500 – $28,375 – $48,153 – $25 – $708.99 = $36,238.01, which is what my check was for. We’ll get another check for $3405, which is the commission my wife gets for being the listing agent (minus some fees).

2. Let me explain how my loan works. My lender finances both acquisition and rehab costs for the property, minus 20% that I’m required to put down. The purchase price of this property was $45,000 and the rehab costs that my lender paid were $15,000, for a total investment of $60,000. I pay 20% down, and they finance the other 80%, or exactly $48,000 in this case. The extra $153 was the pro-rated part of my next interest payment that would have been due in a couple weeks.

Does that make sense?

To explain a bit more, you’ll notice my total payment for the acquisition of this property was $2000 in earnest money plus $15,340 at closing, for a total of about $17,340. This constitutes my 20% down payment ($12,000) plus my purchase closing costs and loan fees ($2100) plus one year of interest payments that my lender escrows as security ($3240).

Let me know if you’d like me to clarify any of that…

I am not suggesting that you did anything improper here – just curious about these two issues.

-Hakrjak