Ask Cornerstone: We want to buy the house that we are renting but can’t get conventional financing nor hard money. What are our options?

We want to buy the house ($110K as-is) that we are renting. We can’t get conventional financing because it needs to be repaired. We can’t get a hard money loan because we are living in it. What are our options?

“Options” happens to be the key word in your question, since I recommend that an “Option to Buy” as a possible solution…

Since you were considering a hard money loan, you would have needed 20% down, points, and closing costs, so I am assuming that you have at least $25,000.  I would suggest not seeking a hard money loan, but use the $25,000 for fix-up funds, contingency, and option money.

Talk to your landlord and offer him / her an extra 5 months of rent if he/she would give you a one year option to buy the property at the $110K price.  The option would need to state that you have a right to improve the property during the 1 year period.

This way, you do not need an expensive loan, you only need $10K for refurbishment, maybe $4K for option money, and $3K in reserve. Remember, with a one year option, you need to fix it during that time, sell it, or refinancing it or you lose all your repair and option money.  If you think that you need more time, then I recommend structuring the option to have one 3-month extension.

Also, make sure you have conventional financing lined up for after the repair.  If you can’t qualify or don’t have a co-signer, I would not recommend starting this project.

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