I get the same call or e-mail every day from clients or their Real Estate Brokers. They've found a great priced property, but it is in need of some repairs and they believe there's no way to finance the property. There is a is a way.
First, FHA changed Appraisal guides on January 1, 2006. Basically, FHA no longer requires minor property deficiencies to be fixed or repaired prior to closing as long as they do not affect the safety of the homeowners. These items may be cosmetic, normal wear and tear or deferred maintenance. Here are a few examples of items no longer needing replacement or repair:
• Cracked sheetrock, Doors, window glass
• Soiled or worn carpets
• Trash or debris
• Minor Plumbing Leak, such as leaky faucet
Next, if repairs are needed, how do we deal with it? The Banks typically won't make repairs nor will they allow the Buyers to make needed repairs prior to closing, so here are two options.
1. Property needs minor repairs like fixing a whole in sheetrock, or put flooring down in a room. We can set up a Seller or Buyer Paid Escrow Holdback for these minor items. We will withhold 1.5 the estimate. Work should be complete within 30 days. This is acceptable for most FHA and Rural Development loans offered to borrowers with credit scores of 585 and above. Payments made upon completion of work.
2. Property needs many repairs and has missing appliances. An FHA 203k streamline program is offered for repairs/improvements costing $5,000 to $35,000. Up to two payments can be made to each contractor. They don't have to wait until completion to be paid. Here's what can be included:
- repair or replace roof, plumbing, heating, and/or electrical systems
- repair or replace flooring, appliances, windows and doors
- finish, remodel or waterproof basement
If the Costs of Repair/remodel exceed $35,000 or takes more than 6 months to complete, then it would be considered major renovation. These would not qualify under the above programs. Lastly, additions and/or structural damage repair do not fit into these streamlined repair programs.
First Portland Mortgage Corp. offers mortgage financing in Maine and New Hampshire.
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