Monday, November 1, 2010

Fed's Home Loan For Fixer Uppers - FHA 203(k)

Many home buyers have heard of the FHA loan program; however, most are not aware of a secondary loan specificially designed for all home buyers who want to purchase "fixers" and need a loan for the purchase and the rehabilitation. This loan, known as HUD's FHA 203(k) is a great program and one that buyers who aren't afraid of taking on a fixer should seriously consider.

Here is a summary of the program:

- FHA 203(k) is a program that provides loans for the purchase and renovation of fixer properties.
- The program allows for downpayments of as low as 3.5%.
- "Fixers" can range from simply dated to uninhabitable.
- Eligible properties can be between one and four units.
- Can be used to convert single family homes to two-, three , or four units if legal.
- Can apply to demolished homes provided some of foundation remains.

Here's the limitations:

-Investors can't utilize this program.
-Property will need to appraise under market value before the repairs and at market after the repairs.
-"Luxury" upgrades aren't covered but many modernizations like roofs, heating, paint, flooring are considered completely acceptable.
-Buyers must use HUD approved appraiser, lender, and repair contractors.
-Property must be in FHA approved project if property is a condo or has an HOA.
-Interest rates typically run 1% higher than conventional loans and have a little higher closing cost.

Here is our thoughts on who this will benefit:

Overall, the FHA 203(k) program is an amazing program and one that can offer consumers a chance to build equity in a home, beautify a neighborhood, get in with a low downpayment, and obtain a very cheap rehabilitation loan for the repairs. There are many guidelines that buyers will need to be familiar with if they would like to utilize this program. Still, the rules are fairly clear and easy to follow and we think this loan program is just another great gadget in the home buyers toolbelt.