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I am very interested in purchasing a foreclosed home that is sold by Freddie Mac. The outside looks great, but the inside needs some work. Basically, the previous owners took everything including the kitchen sink, literally. The home is going for $99K from $170K in a gated community. It has 2 stories with 5 rooms and 2 bathrooms in half an acre lot. I will probably tear down one of the concrete walls to make a bigger room, replace some broken windows, install toilets, sinks, cabinets, and yes the kitchen sink. My estimates (pulled out of my hat) are about $40K.

The real estate agent told me that a 203K loan was my best bet, but I would like some advice on other types of loans that might benefit me.

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If you intend to flip this property, you might consider either a construction loan or private money.

A construction loan allows you to borrow from a bank against the value of the finished house a little at a time. As each stage of the construction/repairs are completed, the bank releases more funds to you. Interest accrues during the construction, but no payments need to be made until the construction/repairs are complete.

Private money works in a similar manner, but the full amount can be released to you at once so you can get the repairs done more quickly. The interest rate will be higher. If you are flipping, then this higher interest rate is simply a cost of doing business. Since it's a private loan, you ca structure the deal any way you want. Perhaps accruing interest until the property is sold and then paying it back as a single balloon payment on sale of the property. To find private money, contact a mortgage broker and tell them what you have in mind.

If you're intending to keep the property for yourself, private money is still an option. Once the repairs are complete, have the bank reassess the property value and refinance based on the new amount. Pay back the private loan with equity pulled from the house and all the shiny new repairs.

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