A “203” For TLC (Fixer Upper Financing)

You find a neat "fixer-upper," then learn that banks won't lend until the repairs are done, but the repairs can't be completed until the house is purchased!  This Catch-22 scenario can be solved by HUD's FHA-backed 203(k) "rehab loan," growing in popularity because so many foreclosure purchases are in dire need of repairs.

This loan covers the cost of the home, plus money for repairs up to a maximum of $35,000!  To get the ball rolling, you'll need funds for the 3.5% required down payment, and then to find a suitable property.  Your real estate representative will prepare your offer, stating that you'll be seeking 203(k) financing.

Next you'll apply to an FHA-approved lender, including a sheet listing each repair and its cost.  Finally, an appraisal is performed to determine the value of the home once the proposed repairs are complete.

Upon approval, you'll have financed the home purchase plus all your proposed repairs (there's even a 10%-20% "contingency reserve" included to cover any unforeseen improvements).  At closing, the seller receives the purchase price, and the remaining funds go into escrow, to be disbursed to the contractor as work is completed (within six months).

Real estate agents support this loan program because it expands home ownership and revitalizes neighborhoods, but all you need to know is that it will get you into a very affordable home right now.