That is easy; you will sell more properties and get more referrals.
As a Realtor or Agent why should you push the 203k loan? Let’s start with the other agent, the one that tries to steer you away from the 203k. The only reason that happens is because they haven’t done their homework on the “k” products. That is correct. Why would I sell you something if I couldn’t answer those question you have about the program?
I wouldn’t, in fact they are doing everything including lying about the program because they find it easier than taking a 1 hour class to learn about it.
The program is simple, it is as simple as finding your Teammate who does know about the program. You don't need to reinvent the wheel here. It is clearly a niche product but one you SHOULD have in your arsenal. That is all it is, another tool that has its place in your arsenal. It is no more than that. There are just some properties out there that need some TLC and others right now that need allot of repairs. In any case, you need to know this product for the next few years, inside and out.
I was very happily surprised when a friend of mine came up to me recently after a presentation of the 203k and Limited 203k product and asked me, “how can I use this to sell more of my REO properties?”. I was actually taken off guard but that is why he is one of the best in that business and I was proud that he asked the question because he is trying to move twice as many properties that he did last year, and I think he may do it.
What is the 203k, simply put it is a loan guarantee program that provides purchase or refinance money (a guarantee that if the lender makes the loan it will be paid back) and then includes the money to make the repairs. Is there a limit to the extent of the repairs – NO, not really. There is a limit on the repairs on the smaller “Limited 203k” product of $35,000 including costs and fees and a contingency if you have one (the contingency is NOT always required for a Limited 203k). The limit for the “Standard or Full 203k” or sometimes referred to as the “original 203k” is the purchase price (debt on the existing house) plus the repair costs money and not to exceed the maximum loan limits for the county where the property exists. So, if you have a refinance of a property that you just inherited and it is free and clear of any loans you may put a loan on that property up to your loan limit for the county where it is located. In my county that is $431,250 provided the property will appraise for that amount.
If you want to put the minimum down payment of 3.5% you can find the sales price by dividing $431,250 by 0.965 (96.5 %, the difference between 100% of the sales price less the 3.5% down payment). In this scenario you will put the minimum down payment. You can always put more down but this leverages your purchase to the max.
In fact it can appraise lower than that by 10% and we can still do the transaction. There is a 10% fudge factor on the appraised value. If the appraisal comes in 5-10% low, you still have a deal.
EXAMPLE: Lets look at a possibility. The asking price of a “fixer” was $300,000, then they lowered it to $250,000, still no takers. The bank knows it has issues and finally drops the price to $150,000 when an agent takes their buyer to look at the property.
They call a 203k consultant out to the property to perform a “feasibility analysis” which is a quick idea of what will it cost to repair the deficiencies so the property can be made whole again. Lets say for this scenario it is $100,000 to make the repairs but this home was just a 3-bedroom, 1-bath house so the borrower’s decided to add another bathroom making the remodel part of the “full 203k” the costs come to $200,000 and they decide a 15% contingency is appropriate as the utilities were off at the time of the inspection. Yes, they can be OFF at the time of the inspection but if so, the program mandates a higher contingency reserve of 15-20%. Money held just in case we find something else we hadn’t identified that requires repair once we get into the job.
This is now a $252,500 loan for the repairs on top of the purchase price of $150,000 for a total loan about $402,500 on a home that should be worth about $450,000 - $500,000 when complete. The problem has been that no one had any idea of the cost to fix it up, not the bank and not the previous potential buyers.
But YOU, knew about the 203k and this home is located exactly where your client wanted to take their kids to school. The big advantage other than you made a sale when your competition couldn’t is that your client has “equity” and they get to choose all their own paint colors, cabinets, counter-tops, floor coverings, etc. This will truly be their home. Not just a home someone else fixed up to sell but one THEY fixed up to live in. That is empowering.
See what you can do with a little knowledge? You have to be able to see the potential...
BTW these photos are of the same house before an late in the process.
Downtown
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