When the Kitchens Missing: Financing FIXERS and Foreclosures FHAs 203K Buy and Fix Program
It is almost impossible to finance the purchase (and repair) of homes needing excessive work. This article provides a solution by introducing the FHA 203K program, a loan for both the purchase and repair of homes needing work.
I couldnt believe the kitchen was completely torn out, said Kara Sanders. The house was perfect for her family otherwise. Its was the location wed wanted but we couldnt get financing.
Bad roofs, missing fixtures, holes in walls, all typical for foreclosed properties. Even buyers willing to fix houses have a problem getting the financing to close, and paying for needed improvements.
We didnt have an extra $20,000 to pay for all the work.
FHAs 203K program provides one loan to finance the purchase and the improvements. Escrow can close even if the propertys in bad condition.
Heres an example:
$ 180,000 sales price of home
$ 40,000 cost of work to be completed
$ 220,000 total amount that financing is based on
With this example, the buyer would put $7,700 and finance $212,300. The 40,000 held for improvements would be paid out as work was completed.
By the time we were finished, our house was worth over $300,000, added Kara. Its better than any house we could have afforded to buy.
Whats your first step? Get pre-approved for FHA Financing. When you find a house, youll have to get contractor estimates, then estimates from a HUD approved estimator. Be sure that the house will be worth what youre paying for it, plus the improvements.
Once youve got contractor estimates, a HUD approved estimator reviews the estimates. Then, an appraisal is obtained, indicating what the value of the property will be after improvements are completed, and indicating the present as is value. In certain circumstances, when the total improvements are less than $35,000, the HUD estimator is not required.
Many buyers in todays market are being outbid, or are losing out on certain homes due to multiple offers from other purchasers. Using the FHA 203K program often improves buyers negotiating position by putting them back in the position of being the only buyer.
Keep in mind the program isnt only for items needing repair. It can be used for adding a bathroom or a bedroom, or making certain other improvements.
Kara Sanders was amazed. I didnt even know this program existed. Now Im telling everyone about it!
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