by The KCM Crew on December 17, 2009
Whether you are looking at a Foreclosed Home, Bank REO, a Short Sale, or any home really, you need to be aware of the FHA 203K Program. The general condition of real estate has taken a dip over the past few years, as homeowners are not sprucing up their homes as they have in the past. (Pssst….there's a recession going on….people are afraid of losing jobs…..and they believe they won't "get back" the money they spend by renovating upon sale).
The 203K loan can be used for small repairs (with a minimum of $5000 of work) like a new roof or replacing the boiler, all the way up to practically rebuilding the home and anything in between. Maybe you love a home, the neighborhood, etc., but you hate the kitchen cabinets. The 203K may be for you. As long as the existing foundation stays intact, we can talk about any type of repair, upgrade, modernization, or expansion.
With one closing, we will give borrowers money to satisfy their contract with the seller AND establish a Rehab Escrow Account to fund the agreed renovations. The Rehab Escrow Account is managed like a Construction Loan: money is released after work is completed, the property is inspected by the lender, and the title is updated.
Like all FHA loans, the property must be owner occupied and loan approval requires full documentation of income, assets and credit worthiness. At the same time, underwriting guidelines have some flexibility built in. (In theory, we can lend up to 110% of the After-Improved Value of the home, for example.)
Loans are processed in the same fashion as any other loan (in terms of income, asset and credit) with the exception of the appraisal. Appraisers work in conjunction with the home improvement contractor and a HUD Approved Pre-Planner to determine: "As-Is" Value, "After-Improved" Value, costs of construction, and the draw schedule of the renovation portion of the loan. This work typically adds about a week to the approval process, largely because it should be done BEFORE contracts are signed.
SOME UNIQUE FEATURES OF THE 203K
It is recommended that you work with an experienced loan officer when exploring the 203K Program, as there are many details that need to be considered (from selecting a qualified contractor to the inner workings of the draw schedule and preparing for different contingencies). While the program is more intricate, with the right education ahead of time, it is extremely manageable.
Call 757-724-1064 for more information.
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