The last couple of months have been frustrating for a majority of my buyers. The issue that we are running into is that there are not enough quality homes on the market. I know a lot of you might be thinking that there are a ton of properties in your neighborhood for sale or that are vacant. The key word is quality.
Most of my first time buyers are getting an FHA loan (which requires 3% down payment). A home must qualify for FHA financing, meaning if the home is in bad shape the FHA appraiser will not approve the home unless the work is done. Most sellers (banks) list homes low so they don't have to do the work requested by the FHA appraiser. So the homes that are in good condition and can get FHA approval go quickly, because there are so many buyers looking for that type of home. I have a couple of clients that I have written well over 10-15 offers, and we are still looking for a home. My challenge is how to get these qualified clients into a home in their price range, in a decent area, and in decent condition.
The solution is the FHA 203K loan. At the end of this entry I am going to put the link to the HUD site. How this works is my clients find a home in a good area that needs work. FHA will loan them the money to fix these properties up and attach the "fix up" money onto the loan. Let's say my clients are approved to $200,000. They find a home in the area they want for $175,000, but it needs a lot of work done to it. The property has sat on the market because a majority of the buyers can't buy the property because it won't go FHA, and the bank is not willing to accept the low ball offers that are coming from investors.
So I go in with my buyers and we make an offer at asking price, ($175,000) with our FHA 203K loan. Then my buyers get 2 bids from general contractors to repair anything that needs to be repaired. Also, the buyers can choose flooring, countertops, paint, fixtures, and almost anything else they want for the home. So let's say the bids are around $25,000. An appraiser comes in and figures when the work is completed that the home which is now worth $175,000 will be worth $200,000. The lender will accept the $200,000 appraisal and lend the buyer the money to do the work. So the buyer has a loan for $200,000 and is now able to use $25,000 to fix up their home how they want it.
These types of loans take longer than the typical 45 day FHA loan. This loan can take up to 90 days, because of all of the inspections and contractor bids. For most of my buyers this is a great way to get a great home for a great price. This goes along with the saying, ‘buy the worst home in the best area.'
Below is the link to the HUD website that explains the loan in more detail. If you or someone you know is looking to buy a home send me an email or just give me a call.