Tuesday, June 28, 2011

Evaluating FHA 203k Loans - Is It A Good Fit For You?


Distressed foreclosed homes are in abundance in today's nationwide real estate market. These properties can be purchased for as much as a 75% discount because there is substantial work that is needed to make the home functional and attractive to live in.

Let's assume you're a first time home buyer and researching lending options. You want to take advantage of the discounts available on banked owned foreclosure properties. You've also learned about the 203k rehabilitation loan available from the U.S. Department of Housing and Urban Development (HUD), but you're trying to determine if this is a good fit for you.

Here are some considerations to help you evaluate:

#1: Your FHA 203k loan amount will include the purchase price and repair costs (plus several other fees and a contingency fund for repairs). You'll need to qualify for that entire loan amount and will also need cash for a 3.5% down payment of the entire loan amount (not just the purchase price of the home).

#2: It is vital to consider the repair costs of a distressed home while evaluating your options. Sure the bank may be selling the home to you for $50,000 but it requires approximately $35,000 in repairs (and probably up to 10% more than that since estimates are rarely perfect). Add up the costs. Is this a better deal than purchasing another home that is nice and in move-in condition?

If you're going to use this loan program, be sure that you're able to get an outstanding deal and a home with immediate equity after the renovation is complete. Otherwise, you are likely better off purchasing a home that requires very little or no work.

#3: It takes time to have renovations completed - the larger and more complex the project, the more opportunity there is for delays. Things such as getting permits and inspections from the city can take considerable time. The great news about the FHA 203k loan is that you don't have to make loan payments for up to six months while this work is completed, however you need to ensure that you have the luxury of waiting to move in until the home is in livable condition.

Distressed foreclosure homes offer some of the best values in the real estate market today. If you believe the FHA 203k loan may be a good fit for you, be sure to speak to a mortgage broker or direct lender that has experience with these loans and get started!


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