Today’s blog is a follow-up to my blog on November 24, 2008, regarding a rather obscure FHA program that offers financing on the purchase of distressed properties. With so much attention focused on the escalating rate of home foreclosures, the FHA is really pushing this particular program. The result, I’m told, is that more of these loans have closed nationwide in the last eighteen months than have closed since the start of the program in the 1950’s.
We know that much of our nation is in financial crisis, and the big bank bailouts are constantly in the news. The success of this specific government program is one bright spot on the horizon, yet it’s getting very little coverage. If you are the type of person who can do roughly anything around the house, from minor jobs like fixing a leaky faucet to major repair projects such as replacing a leaky roof, you might want to explore this government-backed financing option. It’s called the 203(k) program. It’s open to first time home buyers as well as to investors.
As mentioned in my earlier blog in November, with the 203(k) program you get one loan to cover both the cost of acquiring the property and the repairs. The repair portion of the loan goes into an impound account that you draw upon as the repair work progresses. If you understand how a construction loan works, it’s my understanding that the repair portion of the 203(k) operates in the same way, with a portion of the total repair cost withheld until all of the work is completed.
The down payment amount for an owner/occupier is the same as for a conventional FHA loan, about 4.5 percent. Investors, by contrast, will have to put down 15 percent, but that’s still less than the twenty to thirty percent that most investor loan programs require. The down payment is calculated on the estimated amount of cost of acquiring the property plus repairs, or 110 percent of the as-repaired cost, whichever is less. Any money left over after the repairs are made can be used for further improvements such as new appliances, repainting, or even to reduce the loan balance.
Almost any type of repair job qualifies for this program, excluding non-essential luxuries such as a swimming pool, spa or tennis court. Code compliance work, safety improvements, and replacement of mechanical and electrical systems are just a few of the many improvements that fit this program. Even making your property more energy efficient will qualify.
If you are currently searching for that perfect lender-owned home, you know all too well that most of them are in pretty rough shape. Most bank-owned properties have been vacant for a long time; some have been vandalized, and/or neglected. So if you are considering fixing up a run down property, either as your new home or as an investment, this program might work for you. For details on the program, contact a local FHA mortgage banker in your area. Contact us if you want information on how to locate a lender owned property in the Palm Springs area.