Over 32% of the homes sold in the Nation in 2011 were bank-owned or short sale properties compared to Tampa, Florida with an over 50% rate. Housing affordability is at historic high’s, making today the best time to buy a home.
The problem with buying bank-owned or short sale properties is that most homebuyers need to make repairs. Previous owners may have stripped the homes and left it in poor condition. This in itself makes the home an incredible deal because it is now being sold at a dramatically lower price compared to neighboring homes. However, many aren’t able to take advantage of that opportunity because they cannot afford to make home repairs, they can only afford a down payment. The FHA 203k Construction and Rehabilitation Loan Program is a solution to this problem.
What is the FHA 203k Construction Rehabilitation Loan Program
The Program is an FHA 30 year fixed rate loan with a repair escrow. This type of loan can be used to purchase a home or to refinance a loan. This loan makes it possible for those with low cash available to purchase a home with just a 3.5% down payment amount with up to $292,500 maximum loan amount in Hillsborough County Florida (the maximum loan amount varies per location). In essence, the program allows the homebuyer to purchase a home as-is while providing the funds to perform all repairs after closing.
Here is where the FHA/203K loan gets real exciting. Eligible repairs are separated into two categories: required repairs and cosmetic repairs. Required repairs include the roof, electric related items, broken windows or doors, non-functioning plumbing, air conditioning or heating, rotted wood, or any safety related items. Cosmetic repairs include flooring, appliances, room additions, garages, pool repairs, drive ways, sidewalks, counter tops, kitchens, cabinets, irrigation, and handicap accessibility. The sky’s the limit! You can buy an existing home but repair and modify the home as if you were purchasing a brand new construction home.
When to use the Program
The Program may be used to purchase any residence that the homebuyer can qualify for.
What is the best use for this Program? Find the worst house in the best neighborhood. What do I mean by that? Homes in the best neighborhoods are generally worth much more than most other neighborhoods because they tend to offer better schools, better infrastructure, and lower crime rates, among other things. So what can a homebuyer do to get into their neighborhood of choice and live in a comfortable home? Buy a home at the lowest possible price and repair it to make it a comfortable home. Homes with no air conditioners or missing kitchens and floors are ideal for homebuyers.
Notice the following example: A family of four finds a home in the neighborhood of their choice selling for $100,000. However, it is a one bedroom/one bath home that is missing the kitchen, floors, and has a non-functioning air conditioner. They decide to take advantage of the Program and borrow $100,000 to purchase the home and another $180,000 for repairs which include adding two bedrooms and bathrooms, a garage and air conditioner, fixing the roof, adding in the kitchen with appliances of their choice, and flooring of their choice. The trick is to buy a home in your dream neighborhood at a significantly lower price than existing homes in the area. Once the repairs have been completed, the home will now be worth what comparable homes in the area are worth causing you to have easily walked into a good amount of equity.
How to qualify for the Program?
This loan is available for all borrowers that have a minimum credit score of 620 and no late payments in the last 12 months. All income, assets and credit must be fully documented with a 2-year minimum history. The home must be owner-occupied for at least the first year.
Contact me to learn more about how this program can help you get the home of your dreams in the neighborhood of your choice.
Sources: Andy Wood, a HUD Certified 203k Instructor
National Association of Realtors