So you finally find the home of your dreams and are ready to make an offer...well, almost. It's in a great neighborhood, has a good school system, and a yard big and safe enough for your kids to play. It's just in need of one thing, upgrades! When you walk into the home you think you stepped right into a 1977 JCPenney Catalog. Dull and let's get some sunlight in here! Unless you like olive-green toilets and wood paneling? Don't think this stuff is ever making a come back...kind of like Tiger Woods, oops.
Anyway, how does a FHA 203k loan work? Here's an example:
Purchase price $300,000
Rehab costs $30,000
Total $330,000
A borrower's down payment is figured on the total amount of $330,000. So, if a borrower was putting the minimum down payment required of 3.5%, their down payment would be $11,550.
Purchase and Sales contracts are written-up just like a normal FHA contract. Sale price $300,000 with the respective down payment. Repairs are left out of the contract and are only for loan purposes. These loans do not take any longer to close than a normal FHA loan IF the mortgage loan officer knows what he/she is doing.
The biggest delay I find is getting the write-up of repairs and information from the general contractor. So, I tell my borrowers, let's choose a general contractor and get the write-up of repairs immediately. The write-up must be signed and dated by all borrowers and the general contractor. It should also be on company letterhead and include the general contractors license number. General contractors must also be licensed and insured and we will need a copy of their general liability insurance.
Below is a list of acceptable repairs/upgrades (home additions are not acceptable):
o Repair/replacement of roofs, gutters & downspouts
o Repair/replacement/upgrade of existing heating, ventilation & air conditioning
o Repair/replacement of plumbing & electrical systems
o Repair/replacement of flooring
o Minor remodeling that does not involve structural repairs. Upgrade kitchen and baths
o Weatherization, including storm windows & doors, insulation and weather stripping
o Purchase & installation of appliances, including free-standing.
o Improvements for accessibility for persons with disabilities.
o Lead-based paint stabilization or abatement of lead-based paint hazards
o Repair/replacement/addition of exterior decks, patios & porches.
o Basement finishing & remodeling that does not involve structural repairs
o Basement waterproofing
o Replacement of windows, doors, and exterior wall re-siding.
o Well/septic repair
Please note that FHA 203K rates are about .375% to .5% higher than FHA rates. Funds for repairs are distributed to the borrower's bank account after the closing; typically in 2 draws. Appraiser must verify that repairs were completed.
I can help you!
Robert Graybill
Sr. Mortgage Consultant
Stearns Lending, Inc.
57 Plains Road Suite 3C
Milford, CT 06461
Phone: 203.530.2674
Fax: 1.203.774.1044
EMail: rgraybill@stearns.com
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