Loan money for Fixer- Uppers
April 13, 2010 Leave a comment
Purchasing a house that needs repairs is often a catch-22 situation. This is because the bank won’t lend you the money to buy the house until repairs are made and the repairs can’t be done until you have purchased the house.
A new HUD’s 203(k) program is available that can help you with this dilemma and allow you to purchase or refinance a property and include the cost of making the repairs and improvements in the loan. The FHA insured 203(k) loan is provided through approved mortgage lenders nationwide.
The down payment requirement for a purchaser is about 3.5% of the total acquisition including the repair costs.
The potential homebuyer locates a fixer-upper and executes a sales contract after doing
an analysis of the property with their real estate professional. The contract should
state that the buyer is seeking a 203(k) loan and that the contract is subject to a loan
approval based on the required repairs.
The homebuyer then selects an FHA-approved 203(k) lender and includes a detailed cost estimate on each repair or improvement. An appraisal is then performed to determine the value of the property after the renovation.
If the borrower passes the lender’s credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the closing costs. The amount of the loan will also include a reserve of 10% to 20% of the total remodeling costs.
At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period. Escrowed funds are released to the contractor during construction through a series of “draws” for completed work.
Home in Hand 