Brooklyn House Needs TLC, and Financing
Q. My husband and I own a co-op and have about $320,000 worth of equity. We're looking to buy a house in Prospect-Lefferts Gardens in Brooklyn for $595,000. It's not a foreclosure, but it doesn't have a functioning kitchen or bathroom. (Nearby, a similar, smaller house in good condition is for sale for $879,000.)</br></br>We think we can get the place for $475,000. Rehabbing it could cost as much as $400,000. But our real estate agent says that we'll have to pay all cash because no one will lend on a house in this condition. Is that true? We only have about $80,000 in cash, but our income and credit are excellent.</br></br>New York City</br></br>A. Your real estate agent is mistaken; you do have financing options. Your best bet is an FHA 203k rehabilitation mortgage. It allows you to roll the purchase price, rehabilitation and closing costs, and even up to six months of mortgage payments (if you don't plan to live in the house during renovation) into one fixed- or adjustable-rate loan.</br></br>However, you won't be able to borrow the entire $875,000 that you estimate it would take to buy and renovate this home. In Brooklyn, according to New York mortgage broker Melanie Crawford, FHA203k mortgages cover up to 96.5% financing of the purchase price and rehabilitation cost, to a base loan amount of $729,750. You can go higher than that if you install energy-efficient improvements, but cannot borrow more than 110% of either the value of the property plus the cost of rehab, or the appraised value of the property after rehab, whichever is less. You'd have to make up any shortfall. (For more rules on this program, see the Housing and Urban Development.)