Wednesday, December 7, 2011

Buying and Remodeling a Home? Tips on Financing With One Loan

Buying and remodeling a home has always presented a financing dilemma: What's the most effective way to finance the home purchase and the cost of the remodel, without having to pay too much out of pocket? Many times, home buyers will shy away from these kinds of properties because they don't want to pay cash or put down a large down payment whn they buy, then have to turn around and pay out of pocket to rehab the home. There is a terrific financing option out there if you're willing to put up with a little red tape!
FHA's 203k loan program may not be as well-known as "typical" FHA loans, but it can be a terrific financing tool. Basically, the 203k loan allows you to purchase and rehab a home - all with one loan - all done at the time of acquisition. The FHA 203k loan has been around for years and was designed to streamline this process.
There are some guidelines and restrictions (after all, FHA is a governmental agency...), but it can be a very effective way to finance the property acquisition and rehab costs with one low down payment. Here are some brief highlights of the FHA 203k loan program:
  • Only One-to-Four unit properties are eligible
  • The structure must have been completed for at least one year
  • Cooperatives are excluded
  • Condominiums are eligible, but only for interior rehab
  • Demolition of existing structure is accepted, as long as the existing foundation remains
  • Rehab work has to be done by an FHA Certified contractor
There are many other restrictions, regulations and procedures, but it can definitely be worth it. This loan process can take a bit longer than a traditional FHA loan, and the appraisal typically costs a bit more (they have to estimate 2 values), so you would also need to factor that in. The lender also has to be FHA approved, but the down payment can be as low as 3.5%.
Thinking about remodeling your existing home? This particular FHA loan program is only for acquisition and rehab, but there are other financing alternatives out there for remodeling projects alone. 
The FHA 203k loan program is not perfect for every situation, but it can be worth checking out if you're planning to buy and rehab a property.
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