Funds for Handyman-Specials and Fixer-Uppers

The purchase of a house that needs repair is often a catch-22 situation, because the bank won't lend the money to buy the house until the repairs are complete, and the repairs can't be done until the house has been purchased.

HUD's 203(k) program

HUD's 203(k) program can help you with this quagmire and allow you to purchase or refinance a property plus include in the loan the cost of making the repairs and improvements. The FHA insured 203(k) loan is provided through approved mortgage lenders nationwide. It is available to persons wanting to occupy the home.

The downpayment requirement for an owner-occupant (or a nonprofit organization or government agency) is approximately 3% of the acquisition and repair costs of the property.

The 203(k) loan includes the following steps:

  1. A potential homebuyer locates a fixer-upper
    and executes a sales contract after doing
    a feasibility analysis of the property with their
    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.

  2. The homebuyer then selects an FHA-approved 203(k) lender and arranges for a detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project.

  3. The appraisal is performed to determine the value of the property after renovation.

  4. If the borrower passes the lender's credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs and is used to cover any extra work not included in the original proposal.

  5. At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.

  6. The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.

  7. Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines their will be no liens on the property.

For a list of lenders who are offering the 203(k) Rehabilitation Program, please see the 203(k) Lenders List. The interest rate and discount points on the loan are negotiable between the borrower and the lender.

Related Articles

Source: Association Times
Search All Articles
Related Articles
How To Save On Closing Costs
HomecashsmMany are shocked when they learn how much they owe to close on their mortgage. But there are ways to save before you sign on th
What are the FHA Loan Requirements?
FhaThe FHA makes it easy to secure a home loan. The FHA Loan Requirements are described in detail in this article.
Homeowners Insurance
HomeinstTips on how to shop for homeowners insurance and save money-also avice on flood insurance
Asbestos
Asbestosdanger2_thAn information guide on asbestos and asbestos abatement. Also discusses vermiculite and how it relates to asbestos.

More...
Most Popular
New Hampshire - The Granite State
NhthumbA relatively small state, New Hampshire plays a major role every four years in the presidential election.
Prevent HOA Board Member Burnout...
BurnoutsmUse these six steps to help prevent burn-out of your HOA board members
First Time Home Buyer and Other Home Loan Programs - Pennsylvania
Houseredroof120The Pennsylvania Housing Finance Agency (PHFA) offers home loans with low interest rates and fees.
Agate Fossil Beds National Monument
NeagatefossilthumbDuring the 1890s scientists rediscovered bones preserved in one of the most complete Miocene mammal sites in the world.

More...

Zip Code Profiler

Neighborhoods, Home Values, Schools, City & State Data, Sex Offender Lists, more.

Instant Home Value!