By guest blogger: Leesa Sandoval
Through the years, the FHA loan program has helped potential buyers achieve their goal of home ownership. The program features reasonable mortgage rates, low down payments and relaxed credit requirements.
The FHA 203k Rehab loan is very popular and follows the standard FHA guidelines with one addition; it allows buyers to roll rehab costs into the mortgage. The financing includes the purchase price plus the cost of improvements required to make the home habitable. Cosmetic enhancements such as kitchen and bathroom updates can be included.
This is a great loan program for Buyers and for Selling Agents. Houses that would normally require the Seller to fund repairs prior to closing can now be closed without Seller repair concessions. Distressed “Investor Only” grade properties can now be marketed “as is” because an FHA 203k rehab loan can take care of repairs for owner occupant buyers.
Typically foundation and roof repair requirements destroy financing potential and limit sales. This is not the case when using the FHA 203k rehab loan. This loan program takes a home with ‘condition issues’ and allows the appraiser to perform an estimation of value, using the “as repaired” value. Such homes are appraised as if the repairs have been completed.
At closing the seller receives their proceeds. The remaining borrowed funds are placed into an escrow account for use during the rehab. Construction begins three days after closing. The seller and the Agents are not involved. The closing date (close of escrow) is not delayed by pending repairs. Therefore, sales transactions usually close within a 45-90 day time frame. (Depending upon the Lender.)
Perhaps the only limiting factors with the 203k loan are that there are not many lenders that do this loan and not many buyers and sellers know the program exists. A list of qualified Lenders can be found here. Click on HUD-Approved Lenders (at the bottom of the page), select category 203K and a geographic coverage area.
About our guest blogger: Leesa Sandoval is a Senior Loan Officer with PrimeLending, a PlainsCapital Company. She has been working in the mortgage business for over 8 years and considers her niche to be rehab loans.