Don’t Pass Up The Fixer Homes…
By: Rob Jordan
The FHA 203k loan is an often overlooked option for buying a home that needs some work, or for refurbishing your existing home. Here’s how it works.
Let’s say you find a house you love, but it needs some work. You’ve saved the money for the down payment, but you don’t have the extra $10,000 or $20,000 or $50,000 or $100,000 that is required for repairs and rehabilitation. Or let’s say your existing house needs some work, and you want to remodel and refinance. Well, you can borrow the repair money from the FHA, and roll it all into one regular home loan!
The FHA 203k loan program is specifically for homeowners who want to buy a property that needs some rehabilitation and repair, and they want to borrow the money for the repairs with the home loan. It’s basically a home improvement loan rolled into your typical home loan.
This program can be used to accomplish rehabilitation and/or improvement of an existing home in a couple of ways:
• You can purchase a home that needs some work and rehabilitate it.
• You can refinance your existing home and build in repair and rehabilitation funds into the loan!
For example, suppose you find a nice house listed for $500,000, but it needs some work. A new roof, new flooring, new appliances, new kitchen cabinets (or a whole new kitchen), new bathrooms. You can use the money for just about anything except a luxury item like a pool. You estimate the repairs at $50,000. The value of the home when fixed up is $600,000, based on comparable homes in the neighborhood.
The FHA will loan you the whole $550,000, and work with you and your contractors to help get the work done. They help you find the contractor, itemize the repairs, develop a schedule, and release funds to pay the contractor, tradesman and material providers as the work is done.
For improvements or repairs LESS than $35,000 – called a streamlined rehab – it’s even easier. The money is advanced to you up front, without a progressive release schedule.
Is the house so bad you can’t move in for a bit? Well, you can even finance the first few months payments to cover the time period during which you’re doing the work. So you’re not making payments on a house you’re not living in.
The program is similar for existing homeowners who want to fix up their homes, but haven’t saved up the necessary funds.
And, you can even do some of the work yourself if you are capable.
FHA rates and qualifying criteria are very competitive, and you won’t be paying a big, over market premium for these loans.
So when searching for a home (or want to fix up your existing house) don’t pass up on the ones located in great neighborhoods which “are in bad shape but have great potential”, just because you don’t have the extra funds to pay for repairs. Maybe the FHA 203k loan is just the thing for you!
For additional information, contact Rob Jordan, of Sotheby’s International Realty/Ewing & Associates. Rob specializes in Agoura, Oak Park and Westlake Village homes. He can be reached at 818.237.4425.