As the next part of my continuing series of affordable loan options for first time buyers here in the LA & Ventura counties, I want to now present FHA's 203k loan program as a viable option for first time buyers looking in buy an REO property.
I don't know what the REO's look like in other markets across the country but here in LA and Ventura counties, many of the bank owned properties are too rundown and simply uninhabitable to qualify for a standard 203b FHA loan. The FHA 203k loan program is a first time buyer's only option if they are interested in purchasing one of these properties. With an FHA 203k loan, a first time buyer can turn that dumpy and dilapidated house into a really lovely home.
FHA offers two different kinds of 203k programs: a) the streamlined program that allows up to 35k in repairs and/or upgrades and b) the standard program that has no maximum loan amount other than the county's FHA maximum loan amount. Some of the repairs that can be financed with a 203k loan program are as follows:
- Changes for improved functions and modernization
- Elimination of health/safety hazards
- Changes for aesthetic appeal
- Plumbing, heating/air conditioning, and electrical upgrades
- Well and/or septic repairs
- Roofing, gutters and downspouts
- Flooring, tiling and carpeting
- Energy conservation improvements
- Major landscape work and site improvement
The FHA 203(k) program will finance both the purchase price and the renovation costs of a property. The mortgage amount is based on the projected value of the property with the work completed (taking into account the cost of the work). All this basically means is that you can buy the property and fix it up with one loan.
In addition to meeting the requirements of standard FHA guidelines, there are also a few inspection and appraisal procedures you must follow, for example, meeting with FHA approved inspectors and appraisers to determine the scope of work to be done as well as obtaining contractor bids for the project.
Earlier this year, I began working with some clients who were looking to purchase their first home. After years of renting and saving for a home, they were finally ready to take the leap. However, after months of searching and making offer after offer, they had become utterly discouraged and their dream of buying a home completely hopeless.
They simple were up against too much competition in their price range and although they were spending everything they had just to get into a home, with so many of the homes they were bidding on, there was the additional concern of the property not qualifying because of the poor condition of the property and having to spend so much more just to make the property livable. 
These places were bad and I don't just mean deferred maintenance, these properties were absolutely destroyed and the chances of them qualifying for any kind of financing was slim to none, unless, of course, it's an FHA 203k loan. My clients had not previously considered a 203k loan before because they didn't want to have to spend the time, energy and money to fix up the place after they had just spent every dime they had to buy it. However, I explained that one of the many benefits of an FHA 203k loan is that they can finance the cost of the repairs into the loan. 
Once they realized that they were going to be buying a fixer regardless of whether it was with a 203k or not, they warmed up to the idea of possibly using a 203k to purchase that fixer. However, they also knew they would have to tweak their search criteria if they were going to be able to afford it. Instead of looking for a move-in ready 4bd/2b property in the 350k range, they began looking for possible fixers in a lower price range so that they could afford to finance the amount of repairs that the property was going to need. 
Initially, they began looking in the 250k-300k range with the hopes of getting a streamlined 203k to order to finance some minor repairs and/or upgrades in order to make the property at least habitable. Unfortunately, the competition in that price range was even worse because of all of the cash investors. They tweaked their criteria one last time and told their Realtor to just find them a property that had been on the market a long time and that had no other offers on regardless of what the property looked like. That's when they found 820 Wright Rd.
The condition of Wright Rd. is absolutely deplorable. At first glance, my thought was that my clients were out of their mind for even considering on buying such a dump. But then, I started listening to their plans; plans to completely remodel this property and I began to see their vision.
The best thing about this property is the nearly 18,000 sq. ft. lot that it sits on in a half way decent neighborhood about a mile from the beaches in Oxnard and Channel Islands.
After spending the past few weeks of going through the appraisal process, talking to contractors and 203k consultants, we are in the final stretch of the transaction (just clearing some final conditions before ordering docs) and my clients are absolutely ecstatic about closing escrow and beginning construction.
They are planning to turn this 1200 sq. ft., 3bd/1ba dump into a nearly 2200 sq. ft., 4bd/2.5ba home. They're also planning to turn the 1-car, detached garage into a direct access 2-car garage with an awesome workshop included (bigger and better than a 3-car garage). After contracting to purchase this property for a mere 200k, my clients will receive nearly 150k in renovation funds to create their forever home.
While this transaction was by no means a simple slam dunk; we had several hiccups along the way that made for some very frustrating and stressful moments. However, my clients are so happy to be benefitting from this wonderful and affordable loan option and would probably still be looking if it weren't for FHA 203k.
My clients have given me permission to follow the project through the construction process and to write about it in my AR blog since that is where they found me. So, stay tuned for the transformation of this property from the mess that it currently is to the beautiful home that it is destined to become.
This post is just the second in my series of affordable loan options available to first time buyers here in LA & Ventura counties. Check back for the next post in the series where I address down payment assistance that is available to low-medium income first time buyers here LA & Ventura counties. Until then, check out my first post on affordable home loan options here in LA & Ventura counties.
If you're interested in purchasing your first home here in LA or Ventura counties, contact me about affordable home loan options that you may be eligible for.
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