Sometimes, the most cost effective way for a home buyer to get into the neighborhood of their choice is to buy a home in need of repairs, renovations or updates. A little (or a lot) of improvement and hard work can result in a home that you might not have been able to afford otherwise.
But, often, these homes don’t qualify for FHA or VA loans. Conventional loans that don’t care as much about property condition require a higher down payment and credit score.
So, how can you buy a fixer-upper and still have money to turn that ugly duckling into a swam? The FHA 203(k) loan program is the perfect solution if you plan to live in the home.
Fixer Upper Mortgage Options
From the HUD Website:
When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods.
The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. To minimize the risk to the mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point the lender has a fully-insured mortgage loan. Read more
For a referral to a local lender that can work with you on an FHA 203(k) loan, please contact West Bank Living.