by Gail Browser
In the past, everyone simply assumed that real estate would always go up in value and was always a safe investment. Times have changed! In order to successfully buy a home at a price that will stand up to today’s turbulent real estate market, you need to get a phenomenal deal. One of the easiest ways to do this is to buy aforeclosure home.
Unfortunately, most homes that are foreclosed on are in need of repair. Either the previous owner was in financial trouble and unable to pay for necessary maintenance, or the home has been sitting vacant for months or even years and no one has been taking care of it.
The trouble with buying one of these homes in need of repair is that many buyers don’t have the funds available to pay for the repairs. In addition, lenders generally won’t loan money to the average buyer to purchase a home like this. Luckily, there is a loan program custom designed to handle this situation – the FHA 203K Rehabilitation Loan program.
The Federal Housing Administration (FHA) was formed back during the Great Depression in the 1930s in order to help the average personget a mortgage. It is part of the Department of Housing and Urban Development. FHA does not lend money, but rather insures that the lenders who do loan the money don’t suffer financial losses if the borrower fails to make the mortgage payments. FHA’s standard loan program allows for very small down payments and great interest rates for home buyers who don’t qualify for conventional mortgage programs.
The FHA 203K program is a great extension of this. You can buy a home that needs repairs and still buy it with a small down payment while borrowing the money to make the repairs. In addition, there is a process in place to protect borrowers who may not be as familiar with the process of having substantial repairs made to a home.
There are 2 versions of the FHA 203K loan.
The first allows for making substantial, even structural repairs to the home. This program is used when the cost of the repairs is in excess of $35,000 and/or involves structural repairs. In this case, inspection and planning requirements kick in which help guarantee that the home is repaired to good condition. This program can even be used to purchase a home and move it from one place to another!.
The second version is referred to as a Streamline FHA 203K. When the repairs are not structural and cost less than $35,000, the FHA Streamline 203K program is perfect. You can replace paint, carpet, roof, and flooring and even do minor renovations in the kitchen. This loan will cover purchasing new appliances.
This is the perfect loan for purchasing a foreclosed home and getting a great deal. In spite of the fact that repairing these homes themselves would actually net the lenders more money in the end, the lenders don’t want to be responsible for supervising the repair process. As a result, these homes in need of repair are usually sold at incredible discounts.
In order to use the FHA 203K loan, you must be careful to hire both a real estate agent and a lender who have substantial experience with the program. They will be able to guide you the process with no more trouble than obtaining a conventional mortgage, you can get a great deal on a home and protect yourself against a turbulent real estate market.