Many of our potential sellers are faced with a very common problem...
If your property is older and in not so perfect condition, maybe it just needs the odd improvement, updating, perhaps a new kitchen or bathroom, or a new roof and windows. But funds are tight, so why put money into something you may want to sell sometime in the next few years? Will you get back what you put in? I'm sure you don't want to spend your savings and gamble on a return on the investment, even if it does make life more comfortable in the meantime.
Is there a better way to do some fixing up than dipping into your savings? Consider an FHA 203K renovation loan to fix up your not so perfect home and make it a much better product for us to sell one or two years down the road.
Contrary to what so many people believe about the FHA 203K Loan, it is not just for repairs!
This little-known program will solve any of these “buts” and more! With the exception of two ineligible repair costs, major landscaping and the installation of outdoor luxury items (pool, tennis courts), you can include whatever your heart desires into your loan. A few ideas to get your juices flowing: carpet, paint, new appliances, new kitchen, new bathrooms, new hardwood flooring, finish the basement, build an addition, build a garage, convert to handicapped accessible, install security systems, etc.
Another way is for GPS to market your property showing existing photos opposite artists renderings which show the possibilities of how it could look once updated. We've all heard "I love that house, BUT the kitchen is outdated, BUT it needs another bedroom/bathroom, BUT I want a finished basement, IT NEEDS a new roof, windows etc." Using artist renderings is a a great way to show what could be, without putting in all the money and time to make it beautiful.
Both are sure ways to get a potential buyer to overlook the flaws and stop thinking about the additional cost of improvement.
FHA 203K Loans Help Avoid Inspection and Appraisal Issues
You could be under contract on a property with every possible thing wrong with it: furnace, water heater, HVAC, roof, sewer, structural, plumbing, electrical, grading, siding, decks, windows, asbestos, lead-based paint, etc., and this property would fly through the appraisal and underwriting without any issues. When utilizing the FHA 203K Loan, the lender is protected from the risk because this is a government-insured loan.
What Properties Are Eligible?
There is no such thing as an FHA 203k approved property. Any single-family home, townhome or even multi-unit (up to four units) property can be financed with FHA 203k financing, so long as the buyer is buying the property as their primary residence. Condos are also eligible but must be in an FHA-approved complex and be one of no more than four units in the building.
Applying for the FHA 203k Loan
Remember, this is an FHA Loan, so the guidelines are just as lenient as any other FHA program. There are no income limits, you do not have to be a first-time home buyer, credit scores down to a 620 (possibly lower/varies by lender), ability to use alternative credit, debt-to-income ratios up to 50%, cosigners allowed, down payment of 3.5%, gift money/down payment assistance allowed for down payment and seller concessions up to 6%. I know you’re concerned that the interest rates are much higher. Of course this varies per lender, but over the past 12 months the rates have been anywhere from the same as a regular FHA (FHA 203b) loan to about .25% higher.
Hired Help
There is no such thing as an FHA-approved contractor/handyman. The borrowers can select whomever they would like to perform the work, so long as they are experienced and insured.
Problems to Avoid
The most important problem to avoid is choosing an experienced FHA 203k Lender. This program wasn’t needed until now, so many lenders have chosen not to provide the FHA 203K Loan, whether because they don't know how, don’t want to invest in learning how or don't want to do the extra paperwork. Either way, working with a lender who isn't experienced with FHA 203K Loans is something you should avoid at all costs – the process is complex enough as it is. The formula to success is 1) selecting the right team of lenders and contractors, 2) setting realistic dates and deadlines, and 3) setting proper expectations to work for you and your family.
Interested in finding out more? Give me a call and I'll put you in touch with a trusted and experience loan officer to help you make the right decision. (845) 848 2218.
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