Funds for FHA Fixer-Uppers
HUD has developed a new FHA insured mortgage, called the Streamlined
(K) Limited Repair Program, that permits homebuyers
to finance an additional $35,000 into their mortgage to improve
or upgrade their home before move-in. With this new product,
homebuyers can quickly and easily tap into cash to pay for
property repairs or improvements, such as those identified
by a home inspector or FHA appraiser.
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.
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
requirement for an owner-occupant (or a nonprofit organization
or government agency) is approximately 3% of the acquisition
and repair costs of the property.
loan includes the following steps:
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.
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.
is performed to determine the value of the property after
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.
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.
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.
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.
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.