So you or your client have found a home in a great area in the client's price range. Only one problem: it's in bad shape. The HVAC system is 50 years old, the roof is 40 years old and the windows may as well not even be closed. Plus the kitchen has vinyl floors in 3 different patterns and the counters are all laminate with burns and holes and scars.
Not to fear! Meet the FHA 203K Streamlined renovation loan.
Eligible Improvements Virtually any kind of improvement is eligible provided it becomes a permanent part of the real property and adds value.
Additions to the structure
Kitchen or bath remodels
Finished basement or attic
Patios, decks or terraces
Roofing and landscaping
Safety, energy efficiency and electrical upgrades
Handicapped accessibility improvements
Luxuryitems are not eligible
Swimming pools, hot tubs, tennis courts, gazebos, barbecue pits, saunas or alterations to support commercial use
The maximum loan amount must be within the FHA loan amount maximum for the MSA where the home is located and must include the purchase price and the renovation amount. The maximum renovation amount is $35,000 and the minimum is $5,000. Under $5,000 we can do with an escrow of repair funds. A minimum of 10% contingency reserve is required and must also fit into the FHA loan maximums for the area where the property is located. (Any balance remaining on the contingency will be applied to the principal balance and may not be used for additional repairs.)
Yes, it takes a little longer to close an FHA203k Streamline loan than it does to close a standard FHA loan. If you are an agent and you are concerned about that extra couple of weeks just think of it this way: You may make a sale you would not have otherwise made. You may help a buyer get into a home in the area where they wanted to live instead of where they "had" to live. You can be a real hero for someone.
If you are in Georgia I can help you with the necessary paperwork and give you a short class in how to use the FHA 203K Streamline Rehab loan to purchase, sell or represent homes in today's economy. Never hesitate to call me at any time and I'll be happy to answer your questions.
Ken Cook - Web coder (I write the programs that make the whole world zing!) (678) 439-8683 Anything your mind can conceive I can create - online that is!
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NOTICE: I have been writing in this blog since July 2006. Some of the older articles may contain information that has changed. Please check the date and phone me if you have any questions.
How about a garage. We did a 203(k) in Baltimore County and our buyers financed the construction of a garage Most of the homes in the community had a garage and the home they wanted did not. I love the 203(k).
I'm so excited about the possibilities of this loan that I have already begun to stir the interests of my local market. Thanks is an understatement as I have shied away from this particular loan for years as everyone around me said not to pursue them. You have won me over. Oh Yeah!
Hi Ken -- The only complaint I have heard from my past clients is the paperwork is too onerous. Once you get through that, it's a huge benefit to everyone involved. In fact, I think FHA loans (203K included) will be on the rise in the future, and they already are in our market.
Thanks for reminding us that this is a very real and viable option for a lot of our clients! Options are incredibly important, particularly in our current market.....
Lenn - yep. Full 203K does miracles like that. The Streamlined version is a little limited but still an amazing tool for selling homes when the buyers love the location but the home needs loving.
James - only people who fear them don't do them. They are powerful.
Chris - the paperwork really is not too bad considering what is being done with the loan. Borrowers ALWAYS complain about the paperwork. If we ever do one together your clients wont complain about the paperwork, they'll rave about the awesome home you found them and what a terrific job their lender did.
Greg - I attended a virtual chat on Twitter for Atlanta Real Estate and the topic was "what incentives are you using and which are working"? I introduced the 203k and the Energy Efficient Mortgage and suddenly I was the agent's best friend.
Ken, another excellent blog. Add me to the list of rebloggers. Lenn suggestion about financing a garage is excellent.
I agree with your resonse to Chris' comment. Aside from the repair workup and a few extra signature forms for the borrower the paperwork is not a problem.
If the end loan investor is Bank of America, you better prepare your clients to wait up to 60 days to get their first disbursement check. We do a lot of these loans and Bank of America is really behind for processing the disbursements.
Ken - Thanks for taking the time to write this post. Even more thanks to you for allowing a re-blog. It's great to be able to pass info about financing on to buyers by someone who understands it better than I ever will! :)
I've heard about this loan.....but it's not used much in my area. From what I've heard it's hard in our area to find lenders that want to use it. I'm definately going to check with a couple of the area lenders and see if they would be willing give me some information on it.
Thanks for your blog.....maybe it's opened up a avenue for some of our troublesome listings.
Thanks for this useful information - you do a great job of breaking it down and simplifying the overview of the program. I have resisted these in the past because of the time and the uncertainty.
I'm going to go ahead and reblog this for my readers...
I've had experience with this type of loan "post hurricane ike" here in Galveston. They are very beneficial in certain circumstances. Great blog! and informative to those that haven't been exposed to it~
Ken, consider this re-blogged again. Great explanation of this loan. Indeed it will sell homes that otherwise wouldn't sell. What about an older home that has been taken down to the framing? Would that qualify? We have such a listing. A lot of work has been done on it, but the HVAC and drywall and kitchen and bath fixtures, cabinets, haven't been put in. Sounds perfect for this loan.
My experience with 203K deal was eventually very good. That was the only way to help this family with the affordable house in a desirable neighborhood. Waiting period was terribly long. Yes, it was Bank of America who secured the repair part of the loan. However, if your clients are prepared, patient and if they hire a decent contractor it's a perfect solution for many families!
It may be a problem if your clients buy a house in the city with point of sale inspections and escrow requirement. Not every city honors 203K purchases. They just want money in escrow right at closing.
This is a great loan with all of the beat up trashed bank owned homes out there.... Not only does it up the value of the home.. it also provides work for the local construction trades and that's real recovery.
The $8,000 tax credit should be mandated towards home improvements instead of who knows what... A little sweat equity makes a house a home.
Great information. I recently signed up with Dennis Walsh and Associates to become a 203k specialist and residential construction certified. I've also recently written a post on FHA 203k loans, hopefully by learning more about it I can encourage more buyers to avail of it. it's a win win situation!
Ken, Great post about the 203K program. I would like to see more realtors using this program to sell Bank Owned or HUD properties to Owner Occupants instead of Investors who generally do a little work and then resell the property. As Svetlana said "if your clients are prepared, patient and if they hire a decent contractor it's a perfect solution for many families!" Also dealing with a Lender that is familar with the program is a key part of the success. In Northern Ohio we had about 90 lender that did 203K loans in the last year. Most did very few of them, The company I work for does about 20% of all the 203K loans in Northern Ohio. My advise is for clients to choose a lender that does and knows the 203K product not a lender that wants to start doing them.
A client who just got a contract are foreclosed property that is not complete. The lenders say that any government-backed loans will not work because the house is not habitable, the plumbing isn't finished no appliances, no floor coverings just wondering if this type of loan will work in this situation
I have not had a deal accepted with a 203k. I have made several offers for clients with this type of loan but it seems that most sellers are looking for cash deals and we have missed a couple of nice properties this way. I would really like to close one with a 203k so that I have gone through the process with it.
This took some time for you to cover this so well. I am appreciative of this post, it spells it out in easy to understand format that can be understood by anyone whether they are working with mortgages daily or a consumer that needs an FHA 203K.
Thank you. Is it Ok if I re-blog for my clients also?
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Thanks Ken!!!!!!!!!!!!!!!!!!!!!!!
203k and reverse mortgages as purchase money are the two most exciting mortgages available!!!!!!!!!!!!!!
Bill