When a property does not meet the minimum standards required by a lender, rehabilitation is involved. Typically, this means a lender will not make a long term loan on the property until the improvements are complete. In the past, the only way to do this would be with a construction loan which comes with high costs and short terms. This program is not a cost effective solution for the regular homeowner.
Why is This So Important Today?
Recently, we are seeing more and more foreclosures come onto the market. Often times, the owners remove things such as appliances, carpets, sinks and toilets and do not fix other items (i.e. holes in the wall, damaged floors) when they leave. When the bank puts these homes onto the market, they are sold “as-is” meaning the bank will not make any repairs to the property. For a buyer who may not have a lot of extra cash after their down payment and closing costs, they would not be able to consider purchasing a home that needs work. Number one, a lender will not lend on a home in disrepair with no appliances, sinks or toilets. Number two, even if they did make a loan on the purchase price of the property that still would not make the home habitable. The borrower would have to get money somewhere to repair the property.
Buyers Who Can’t Afford to Do Repairs…There is Help!
There is a loan product that will help the average person finance the cost of the repairs into one long term purchase loan called the FHA 203(ks). This is a government insured loan that will finance up to $35,000 in the purchase loan (no second loan, construction loan, etc) to fix cosmetic repairs. Not just for REO’s and short sales (although they are usually great candidates), this loan will finance any property in disrepair.
What Repairs Are Eligible?
All health, safety and energy conservation items must be addressed prior to completing general home improvements.
A homeowner can use the 203(ks) program to finance such items such as:
- Room additions
- Drainage issues and gutters
- Roof
- Upgrade HVAC and plumbing
- Waterproofing and weatherization
- Rehab or refinish basements
- Upgrade energy efficiency and electrical
- Kitchen or bath remodels including appliances
- Decks, porches, terraces and patios
- Replace windows, doors and skylights
- New flooring, tile, paint, wallpaper and more
- Handicapped accessibility improvements
- Install, repair or replace well or septic
What is Not Eligible?
Luxury items such as:
- Exterior hot tub, sauna or spa
- Outdoor fireplace or BBQ
- Swimming Pool
- Satellite Dish
- Tennis Court
How Is the Work Approved? When Does It Have to Be Complete?
The necessary repairs must be noted in the appraisal and you need a detailed contractor bid. The property closes as is and the repairs must begin within 30 days and be completed within 6 months of closing.
Is this Loan Available for a Refinance if I Already Own a Home?
Yes! If you are a homeowner who needs to do some repairs on your property, you can refinance into an FHA 203(ks) and get up to $35,000 to do cosmetic repairs on your home.
How Can I Apply?
If you are a homeowner with a home already, or a buyer who thinks they may purchase a home that needs some TLC, call me today for a free no obligation consultation.
Want More Info?
Fill out the form below and we will send you our FHA 203(ks) – How is It Different? Guide.
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Chris Williamson is a Mortgage Advisor with Mortgage California specializing in San Mateo Mortgage.
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