Garage Financing

[Streetstock16]

Looking at buying a home, completely remodeled last year. All new everything located on one acre of land. If I pay asking price I'll have $14K equity based on appraisal from one year ago, should have gone up even more now.I want to build a shop when I move in. My project cost will be between 50-75K. I am working with banks, mortgage companies, etc. What other sorces of funding should I consider for this purchase? All help greatly appreciated.

 

[boiler7904]

Where are you looking to buy?

An appraisal from a year ago is probably useless in determining value. The lender for the purchase will make you get a current one as part of their package in order to make sure the debt ratios work for them on this loan.

Case in point, I bought my house two years ago for about $210k. Our mortgage company does a loan evaluation every couple of years. In the course of the conversation, the guy said that property values in my area are up about 3% or so for each of the last two years meaning my house is worth around $223k. There's no way I'd be able to get that in today's market. I'd be lucky break even if I put it on the market now.

As far as other funding, is a construction loan (rolled into one mortgage at end of build) an option? As usual, everything will be based on your credit history and relationship with your banker / lender. My mortgage company is telling people that they need a credit score around 700 to even get considered for a loan and they didn't even get burnt in the whole subprime fiasco. Capital is real tough to come by right now.

 

[Mr. Welsh]

I've heard that capital is really easy to come by now, but you must have great credit. The logic behind the rumor was that lenders were looking to balance out their risky portfolios.

But I have no recent firsthand experience, only hearsay.

 

[tdkkart]

The problem you may run into is that your 50-75k project may be too much based on the value of the property once the project is complete.

Example, If you are buying a home, say $200k appraised, $186K purchase price. You put 20% down, $37200, you will have a 1st mortgage of $148,800. Assuming you have good credit, 700 or above, the bank will do it, no problem. Their interest in the property is far less than it's appraised value.

Now you need to finance your project. Based on a $200K appraisal, and your $149K mortgage, you have $51K equity. Depending on your credit score, you MIGHT be able to get a 100% home equity loan, but likely less. What the bank is going to look at is the value of the property against their interest in it. They will not, if their smart, loan $250k against a $200K property.

What you need to look at also is what your final interst in the property will be. Just because you build a $75000 garage does not mean that you can automatically add $75000 to the appraised value of the property, probably more like $30k, maybe.
Don't get yourself upside down in the property or you will lose your **** if you have to sell 5 years from now. Based on the above, you're gonna have $225,000 into a property that might sell for $230,000, which isn't too bad, except that when you sell you'll walk away with $5000 cash, as apposed to the $37000 cash you had into it initially.

Obviously the situation is even less rosy if the house your looking at is only worth $100,000 now.

Also, do you have a house to sell now?? How's the market in your area??
We're in the process of trying to buy and sell, and the market around here ***** right now. We've got a decent house at a decent price, but it's not selling primarily because we can't even get any lookers. Can't sell it if nobody's even looking.................

 

[GSSFC]

As said above don't get upside down. The market in my area has taken a huge dump. A lot of people have over extended themselves. It will likely reverse and you will have equity, but don't count on it in the immediate future. I also think there is a lot of room to negotiate a deal when buying now, definitely a buyers market for sure!

Tim

 

[kvom]

As far as other sources of loans, you could see if the seller will finance all or a part.

If you are not building the shop as a business, I would be careful not to build too much. As said above, a $50K addition to a $150K home is less wise than to a $500K home. Ask your realtor (and others) for a comparable assuming the shop has been built.

 

[Dragster Racer]

First of all, don't buy with a great consideration of a one year old appraisal. Check out what other comparable homes are SELLING for. You can get a better deal in this market. Only having $14,000 equity in a home and then eating that up and then some is not a sound financial plan. Will the banks let you do it? Probably. Is it a good move? No. Save up some money and pay cash for that garage in a couple years. (Unless you are really sinking $75,000 into a garage, which won't increase the value of the house by that amount in all likelyhood.)

 

[tdkkart]

If you can imagine it, there are actually people out there that think that a garage is just garage, no matter what it cost. Also, beleive it or not, there are people out there that think that there is no need for a 2nd garage that may not be attached to the house.

Can you believe this??


What I'm saying is that while dumping a $75K garage on a $50K property may make perfect sense to you, and to the rest of us, but when it comes time to sell the property might even be worth less to some people.

Kinda like purple walls, it works for some, but if you expect to sell it white may be a better choice...............

 

[heavytlc]

I am just finishing a refi on my primary residence in North Carolina. It is a 2000sqft brick house 4/2. Attached 32x 24 brick garage. I have a detached 30x50x12 shop, block with the same brick as the house. Two post lift seperate meter, half bath, the works. Because of comps my shop never adds any real value to my appraisal. If they cant show a sales price for a like property in the area you will not get much for it on appraisal.

I just finished my new dream shop, 60x100x16. It has all the rigt stuff, 400amp service, underground power on 12.5acres. 1500sqft two story apartment with a 200amp service, 3mini splits, acid stained polished concrete, slate tile, maple hardwood floors, gourmet full kitchen, 2 full baths, laundry room,ADT security, and one bedroom. My bank will not even touch the property as a standard residential mortgage. There a lots of places like mine in the area, but nothing that they can use as a comp. I am lucky to get 10cents on the dollar for value of the shop. It almost hurts your feelings to build The ultimate shop, and have the bank laugh at you.

There are ways around the mortgage issue. In my case I took 4years to build my new place and paid for it as I built it. Next time I will buy a Condo, and a smaller commercial building that is already standing. It is real hard to get value out of anything more than a 2car garage. Very few people even care about any kind of a shop. Hard to belive but very true.