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Money to Purchase AND Renovate Your Home

Whether you are looking at a Foreclosed Home, Bank REO, a Short Sale, or any home really, you need to be aware of the FHA 203K Program.  The general condition of real estate has taken a dip over the past few years, as homeowners are not sprucing up their homes as they have in the past.  (Pssst….there’s a recession going on….people are afraid of losing jobs…..and they believe they won’t “get back” the money they spend by renovating upon sale).

The 203K loan can be used for small repairs (with a minimum of $5000 of work) like a new roof or replacing the boiler, all the way up to practically rebuilding the home and anything in between.  Maybe you love a home, the neighborhood, etc., but you hate the kitchen cabinets.  The 203K may be for you.  As long as the existing foundation stays intact, we can talk about any type of repair, upgrade, modernization, or expansion.

With one closing, we will give borrowers money to satisfy their contract with the seller AND establish a Rehab Escrow Account to fund the agreed renovations.   The Rehab Escrow Account is managed like a Construction Loan:  money is released after work is completed, the property is inspected by the lender, and the title is updated.

Like all FHA loans, the property must be owner occupied and loan approval requires full documentation of income, assets and credit worthiness.  At the same time, underwriting guidelines have some flexibility built in.  (In theory, we can lend up to 110% of the After-Improved Value of the home, for example.)

Loans are processed in the same fashion as any other loan (in terms of income, asset and credit) with the exception of the appraisal.  Appraisers work in conjunction with the home improvement contractor and a HUD Approved Pre-Planner to determine:  “As-Is” Value, “After-Improved” Value, costs of construction, and the draw schedule of the renovation portion of the loan.   This work typically adds about a week to the approval process, largely because it should be done BEFORE contracts are signed.

SOME UNIQUE FEATURES OF THE 203K

  • Mixed-Use Properties may be eligible!  As long as the commercial space is no more than the allowable square footage based on the number of floors in the building and none of the renovation monies are used for a commercial renovation, the 203K gives tremendous interest rates for Mixed-Use Properties.
  • The loan can be used (when appropriate municipality approval) to change property usage…..converting a 1 Family Home to a 2 Family, a 4 Family to a 3 Family, or any variation that stays within the 1-4 Family boundaries works.
  • On major renovations (ones where the house will not be habitable until after the work is completed), we will finance up to six months payments into the loan.
  • There is a Streamline 203K for projects that require less than $35,000 of repairs.  Typically, we like to see only one or two items of work that can be done quickly (with one inspection).

It is recommended that you work with an experienced loan officer when exploring the 203K Program, as there are many details that need to be considered (from selecting a qualified contractor to the inner workings of the draw schedule and preparing for different contingencies).  While the program is more intricate, with the right education ahead of time, it is extremely manageable.


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Trackbacks & Pingbacks

  1. […] The FHA 203(k) Renovation loan, available as a purchase or refinance, established in 1978 by the US Congress to revitalize our nation’s housing stock was ahead of its time by about 30 years.  The authors of this loan program must have seen this housing market coming.  The 203(k) allows an owner occupant home buyer to purchase a home in need of repair and get funding not only to purchase it but also to fix it up in one loan.  It allows the seller to sell and close a home “As-Is” no matter how bad the condition is.  A home could be condemned, it could have a cracked slab or damaged foundation, code violations, fire damaged, leaking roof, or no kitchen.   The buyer can close it “As-Is” and include funds to fix up the home in one loan. […]

  2. […] FHA 203(k) Renovation loan, available as a purchase or refinance, established in 1978 by the US Congress to revitalize our […]

  3. […] FHA 203(k) Renovation loan, available as a purchase or refinance, established in 1978 by the US Congress to revitalize our […]

  4. […] Additionally, with many properties in need of some renovations or repairs, you need to explore the FHA 203K Program discussed in one of my earlier […]

  5. […] Additionally, with many properties in need of some renovations or repairs, you need to explore the FHA 203K Program discussed in one of my earlier […]

  6. […] Sales & Foreclosures During the past week, this blog has concentrated on short sales and mortgage information you could use if you decided to buy a distressed property. It is important that we realize that […]

  7. Social comments and analytics for this post…

    This post was mentioned on Twitter by steveharney: Money to Purchase AND Renovate Your Home http://bit.ly/5q8hsk

  8. […] This post was mentioned on Twitter by Glenn Hanon, Steve Harney. Steve Harney said: Money to Purchase AND Renovate Your Home http://bit.ly/5q8hsk […]

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