Home buyers in Cincinnati often ask me what a 203k loan is and if it is appropriate for them. For the ambitious home buyer looking for upside potential, the short answer may be yes.
A 203k loan is a type of FHA loan for home buyers that want to finance into the loan the extra money for home repairs. These loans are predominantly used for distressed homes like foreclosures and short sales; however they don't need to be limited to those homes. For example, if a home buyer wants to purchase a home but it needs some updating or maybe a new HVAC or roof, this type of loan should be considered if financing those upgrades into the loan rather than pay cash or using a credit card is more desirable.
FHA 203k loans are for owner occupants however there are similar products for investors although those loans typically have different qualifications. When a utilizes an FHA 203k loan the home buyer purchases the home for the price they or their buyer's agent negotiates for them, they borrow the money from the bank in the amount of the purchase price plus any amount necessary for the repairs and upgrades minus the down payment. Down payment is typically a minimum of 3.5% but ask the lender for specifics.
The lender for the loan will require the home buyer receive formal estimates or bids from a single contractor handling the entire job (i.e. general contractor) or from each and every contractor if the home buyer plans to manage the process themselves. In my experience, it has been much easier for the homeowner to allow a single general contractor manage the job if there are going to be more than 3 separate areas of work and the separate contractors that come with that work (i.e. roofing, pluming, flooring, painting, foundation, etc.). For a little extra money the process seems to go much smoother when the job management duties are kept to a minimum.
For an ambitious home buyer choosing to renovate and fix up a property a 203k loan may be the way to go. Often times the typical home buyer doesn't want to deal with properties that are less than perfect for them (i.e. properties that will require some repair work and upgrades to get it up to today's standards). For the ambitious home buyer willing to invest a little time and patience, purchasing a home that has some deferred maintenance and utilizing a 203k loan to finance the purchase may pay off down the road. For example, if the buyer finds a home for $150,000 that needs $40,000 in work but will be worth around $235,000 once the work is completed will have about $45,000 in equity. If the buyer wants, they can then sell this home, keep all of the profit for themselves and then go and repeat the process.
If I can be of any assistance or show you what we can offer please don't hesitate to call or email. Our service, values and expertise are vital in this market! If you need help with any real estate needs or want to SEARCH the MLS for FREE check out www.ISellCincinnati.com or email mike@ISellCincinnati.com or call 513-325-1959.
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