Program 203(k)… Single Family Rehab Loan Program
Funds for a Handyman-Special and Fixer Uppers
Many times one of the best ways for a person to become a homeowner is to buy a fixer upper. A new buyer trying to get their first home often can get a great deal on a fixer upper, however often the purchase of a house that needs repairs is often a catch-22 situation, because the bank usually will not lend the money to buy a house until the repairs are made. Of course the repairs can’t be made (at least they should not be made by the buyer) until the house has been purchased.
Did you know that HUD has a program, called the HUD 203(k) that can help you overcome this obstacle by enabling you to purchase or refinance a property plus the cost of making the repairs and improvements in one mortgage. The FHA-insured 203(k) loan is provided through many of the leading lenders nationwide and is available to any individual who is looking to occupy the home.
The down payment requirement for an owner-occupant is typically 3.5% of the purchase price and repair cost for the property.
There are few key steps to follow when using a 203(k) loan:
· Locate a fixer-upper and execute a sales contract, of course you should do this with a real estate professional. The contract should state that the buyer is seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the FHA or the lender.
· The homebuyer next selects a FHA-approved 203(k) lender and arranges for a detailed proposal showing the scope of work to be completed, including a detailed cost estimate on each repair or improvement of the project.
· An appraisal is then performed to determine the value of the property after renovation (ARV)
· Borrower then passes the lenders credit worthiness test, and the loan is closed in an amount to purchase the house and perform all repairs listed in the repair cost. The loan will also include the allowed amount of closing cost as well as a contingency reserve of 10% to 20% of the total remodeling cost and is used to cover any extra work not included in the original proposal.
· At closing the seller is paid off and the remaining amount of funds are placed into an escrow account to pay for the repairs and improvements during the rehab period.
· Mortgage payments begin after the loan closes. The buyer can opt to have up to 6 months of mortgage payments placed into the cost of the rehab if the property is not going to be occupied during the construction / repair period. However they cannot exceed the length of time it is estimated to complete the rehab.
· Escrowed funds are released to the contractor during construction through a series of draw request for completed work. To ensure completion of the job, 10% of each draw is held back, this money is paid after the lender determines there will be no liens on the property.
Tags: Antoine and Shona Grier, Antoine Grier, ASG Investments, buying a house, buying a new home, buying real estate, first time home buyer, First Time home buyers, home buyers, housing market, Investing in real estate, Real Estate, Shonda Grier