Tuesday, January 31, 2012

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! 

Article Source: http://EzineArticles.com/2513766

Saturday, January 28, 2012

The Money Pit - Trailer (1986) - If Ever There Was A 203k Opportunity. . .

Fixer Upper? Indeed. Here's the trailer from The Money Pit to show what a real fixer upper looks like!

This is a perfect opportunity for a 203k INTERVENTION!

Wednesday, January 25, 2012

What Is the FHA Rehab Loan?


Homeowners who need to repair an older house, or potential homebuyers looking to purchase and renovate a run-down home may want to look into applying for an FHA rehab loan. These loans are designed to make homes in urban and/or low-income areas more attractive and more livable, and are ideal for individuals on a limited budget. Because and FHA rehab loan is meant to facilitate sustainable development, it cannot be used to construct an entirely new home.
What is the FHA Rehab Loan?
The Federal Housing Administration, part of the U.S. Department of Housing and Urban Development, created the 203k rehabilitation loan in 1978 as a way to improve urban development and provide low-income families with the means to renovate older homes in need of repair. The program also allows individuals to roll all purchase and remodeling costs into one loan, saving them time and money. Because loan lenders would typically consider these projects to be a high-risk investment, the government insures these loans, to encourage lenders to get involved with rehabilitation.
Community Rehabilitation
The FHA rehab loan program is actually the Department of Housing and Urban Development's main initiative dedicated to rehabilitating poor and disadvantaged urban communities. The FHA realizes that the individuals living in these communities, and those looking to move there, will have lower incomes and lower credit ratings than in more privileged communities, and therefore they have adjusted the FHA rehab loan terms and conditions to be more flexible and negotiable than a typical construction loan.
FHA Rehab Loan Required Applicant Information
Most of the application requirements for an FHA rehab loan are similar to those of any other loan. For instance, borrowers must submit to a credit check and employment verification, and they must meet the minimum requirements for individual lenders (which may vary by lending institution). However, the minimum requirements are often much lower than they are for traditional construction loans. Some lenders may approve FHA rehab loan applications for those with credit scores below 640, depending on the situation of the individual applicants.
Eligible Properties for the FHA Rehab Loan
While the FHA rehab loan comes with flexible terms for individual applicants, the fundamental requirements for eligible properties are fairly strict. The FHA rehab loan, for example, can only be applied to the renovation of existing properties that have been built for at least a year or more. The FHA rehab loan can also only be used to cover the renovation of a maximum of four units-in other words, it can be used to fix up an single family house, a duplex, or a condo or property that contains four individually occupied units. These properties are subject to an appraisal before the loan is approved.
Itemized Repairs
An FHA rehab loan allows borrowers to include the price of both purchase and repair in the overall loan amount. For example, if a family finds an affordable home, but discovers that it also needs a new kitchen, the loan amount would be calculated by adding the cost of the home with the estimated cost of repairs. FHA Rehab Loan applications require that all of these repairs be listed; in the case of the kitchen, this would mean obtaining a detailed price estimate from a certified contractor for everything from counter tops to permits.
Additional Provisions
The 203k loan program also builds in a contingency plan for the FHA rehab loan in case the cost of repairs exceed the estimate. For example, applicants can also request a 10-20% "contingency reserve" that can be allocated in the event that unexpected expenses arise. The percentage of the purchase price to be included in the loan can also be negotiated, as can the first several months of mortgage payments. This can be especially useful for people who must pay rent or mortgage to live elsewhere during the renovation process.
Rates and Interest
The interest rates on the FHA rehab loan are incredibly low compared to traditional loans. Additionally, borrowers are only required to put down 3.5% as a down payment. This percentage also includes the cost of repairs, so if a family buys a home worth $100,000 that also needs $20,000, the total value of the house-and the loan itself-would be $120,000. Therefore, the family would need to produce a down payment of at least $4,200, which is 3.5% of $120,000.
Are you tired of renting? Ready to finally buy a house?
I know how hard it can be to see all these great real estate deals pass you by, but if you really want to take advantage of this buying opportunity you'll need to use this single method that works amazingly well.
Article Source: http://EzineArticles.com/6502517

Saturday, January 21, 2012

When the Kitchen's Missing - Financing Fixers and Foreclosures


"I couldn't believe the kitchen was completely torn out," said Kara Sanders. The house was perfect for her family otherwise. "It's was the location we'd wanted - but we couldn't get financing."
Bad roofs, missing fixtures, holes in walls, all typical for foreclosed properties. Even buyers willing to fix houses have a problem - getting financing to close, paying for improvements.
"We didn't have an extra $20,000 to pay for all the work."
FHA's 203K program provides one loan to finance the purchase and the improvements. Escrow can close even if the property's in bad condition.
Here's 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. "It's better than any house we could have afforded to buy."
What's your first step? Get pre-approved for FHA Financing. When you find a house, you'll have to get contractor estimates, then estimates from a HUD approved estimator. Be sure that the house will be worth what you're paying for it, plus the improvements.
Kara Sanders was amazed. "I didn't even know this program existed. Now I'm telling everyone about it!"
Article Source: http://EzineArticles.com/2775602

Wednesday, January 18, 2012

Flip a Distressed Property Through FHA 203k


Did you know that FHA now allows flipping? Put simply, an FHA flip transaction is when a property is re-sold within 90 days of acquisition. It's true! They've waived the no flipping regulation 24 CFR 203.37. (b)(2)! Due to the high foreclosures / REO (real estate owned) and distressed properties on the market, FHA finally sees the need to help stimulate real estate sales across the US of A. This is great news to both investors and first-time home buyers alike. Mortgage rates and property values are at a sweet spot allowing distressed or abandoned properties to truly be affordable. The affordability factor of REO or distressed properties makes these types of transactions more feasible, because most of these properties will require renovation and rehabilitation.
To give you a better perspective of the real estate opportunities within Miami, I did a little research, and it's clearly a buyer's market out there. According to the January 2011 figures of Miami-Dade County Economic Indicators, the median sales price for a single family home for December 2010 was $173,600. Miami-Dade County Clerk of Courts reported there were over 34,000 foreclosure filings for in 2010 alone. Finally, as of today, trulia.com reports over 8,500 single family residences for sale. These stats, along with historically low interest rates, point to a unique opportunity for those looking to buy. Think you can't get into the flipping game because of less than stellar credit, or limited funds for a down payment? FHA just might fit your bill. They have less stringent requirements in order to help homebuyers get the financing they need.
If you want to play in the flipping game here are some of the rules that must follow in order to meet Housing Urban Development (HUD) requirements:
1. The mortgagee must justify and document any sales price that exceeds the seller's acquisition costs by 20% or more
2. All transactions must be arms-length, with no identity interest between the buyer or the seller
3. Seller holds title to the property
4. Limited liability companies or corporations were established and are operating within the applicable state and federal laws
5. No pattern of previous flipping activity exists on the subject property as evidenced by multiple title transfers within the previous 12 months (chain of title can be found on the appraisal report)
6. Property must be marketed on openly and fairly through a multiple listings service, for sale by owner; no assignment of contract of sale could constitute a red flag
Some of the above rules do not sound too bad, just play fair ball and stay away from the funny stuff and you'll be fine. Worst case, if you are an investor looking to flip a distressed property and find a buyer who is a first time home buyer, just keep all of the records showing the renovation / rehab work completed to the subject property to justify the work completed if your asking price is greater than 20% above purchase price.
And here's the best part! Through an FHA 203K program, you can buy that distressed property that you have had your eye on, renovate it at minimal out of pocket costs, and flip it, hopefully at a pretty profit. Your flip will sell because you'll be able to make it look great and also market it as an energy efficient, green home.
Real estate profits in your pocket + Revitalizing part of a neighborhood + Reduced carbon footprint = Winning!!!
Article Source: http://EzineArticles.com/6637123

Sunday, January 15, 2012

Can you move a home from another site using the FHA 203k loan?


I've always found it interesting to see a home going down the street on it's way to another site, just waiting for someone to throw out some dish water out the back door... lol , not really

In the case of moving a home from one site to another several things must be present to qualify for a 203k loan.

1) The house being move must be on it's original foundation. It can't have been moved already to a storage sit while awaiting a lot to move it to.

2) HUD engineering must observe the home on the present site prior to the move and at the new location once sit & bolted on the new foundation.

3) The mover's insurance must cover the home during the move. Looking at the contract this mover has it suggests the borrower is responsible for damages up to $2,500, I don't think this will fly with HUD but apparently the borrower is willing to accept that responsibility. We'll see.

Once the home is bolted to the new foundation a draw payment can be made that covers the moving expenses as well per the 203k loan program.

The one we are doing right now is being moved onto a site that has a well and needs a septic system. In all cases the well and septic work must be part of the first draw or you may find you are waiting until it is. This sounds logical but years ago I was working on the first draw on a stick built home for a lender client. The home had a new foundation, the sub floor was installed, the well worked, and when I asked about the septic system was informed they hadn't started that yet.

I reported to the bank and told them I instructed the borrower to have the septic system ready for inspection at the next draw (not an FHA loan by the way). He agreed. I went to the draw 2 inspection to find out that they couldn't "perk" and a new "hillside" septic system is being installed at an additional cost of $70,000. I was shocked that they didn't have to pass the "perk test" prior to getting the building permits issued. Who would have guessed?

4) Permits is another issue, if you need permits on a job for the work that you plan to do... get them early. It might even save you a fine. I once had a fixer we had just foreclosed on. I had the property secured and hired a guy to mow the lawn. He called me and told me the building inspection department was pissed off at me and red tagged my building telling him he must STOP work and get off the property. 

I immediately went to the building inspection department and told them of the incident. They looked it up and said "yes, here it is with a note that you are hereby fined and must pay double permit fees".

I said okay how much do I owe you... they said it isn't that easy we need to make an appointment to visit the property to see just how much work has been done... I said bring it on.. so far we just mowed about half the front lawn. Some of these inspection departments are just a little wacky.

The inspection cost me $25 and the inspector was the same one who 'red tagged' the property. When she made the inspection and found no work had been done she was a little red faced. I asked her why she sent the lawn mower guy away.. it isn't typically permitted. She got a little more red. Life is fun, then you...

Wednesday, January 11, 2012

FHA 203K Saves The Day

The FHA 203K program can save the day for, the buyer, seller and Realtor. This program, which is used to buy and repair houses has been marketed and discussed as a method to purchase distressed and foreclosed properties. However, this program can also be used to make small repairs and renovations to routine purchases and Long Island mortgages or mortgages throughout the country. This makes the home more desirable for the buyer, easier to sell for the Realtor and more marketable for the seller. First of all, let us discuss the details of the program.

Under the FHA 203K program, the minimum amount for repairs is $5,000. There is an streamline program available with no minimum and a maximum of $35,000. Here are some other aspects to this program:

o First Lien Position
o Owner Occupied
o As in any FHA program, there is an upfront mortgage insurance premium which can be financed
o Assumable
o Loan amount up to 110% of the after repair value

Here are some of the advantages:

o Renovation cost in tax deductible mortgage
rather than high cost credit cards or retail
installment loans.
o Can escrow payments while repairs
completed.
o Escrow funds in interest bearing account .for the benefit of the borrower
o Frees cash on hand for other investment
opportunities.
o Only one monthly payment.

203(k) Eligible Properties

- 1-4 Units
- Condos (interior only)
- Mixed Use Properties-yes you can use this program for mixed use
- Existing homes complete for over 1 year
- New Construction on part of original foundation

203(k) Necessary Improvements

- Health and safety repairs
- Corrections of code violations
- Correcting structural deficiencies
- Repairs necessary to meet HUD
property compliance
- Smoke Detectors

203(k) Repair Ideas

- Structural alterations and additions
- Remodeling kitchens and baths
- Changes to eliminate obsolescence and
reduce maintenance
- Modernize plumbing, heating, AC and
electrical systems
- Install or repair well or septic system
- Roofing, gutters, downspouts

Other 203(k) Improvements

- New free standing appliances
- Interior and exterior painting
- Flooring, carpeting and tile
- Swimming pool repairs
- Energy efficient improvements
- Other improvements that are a
permanent part of the real estate

Who Can Do Renovation?

An Experienced Contractor
- Lender should review and approve the
contractor
- Selected prior to loan closing
- Signed contracts in place
The Borrower is ineligible to do any work
(including painting) unless...
- The borrower is a general contractor by trade
- Cannot be paid labor, but still must escrow
for labor

Rehab Period

- The borrower has up to 6 months to
complete the work
- The rehab period should be realistic
- The Underwriter can grant an
Extension

Work Write Up Format

- Form completed by the consultant:
- Must be prepared in categorical manner
with 35 categories
- Must be detailed as to the work being
performed
- Recommended that it be done "room by
room" as well as by category
- Should be a break down between labor and
Materials

Who Does the 203(k) Work Write Up?

- A HUD approved 203(k) Consultant
- 3 years experience as contractor or home
inspector
- State licensed architect or engineer
- Trained by HUD or accepted 203(k)
trainer
- Local to the area
- Anyone (including the contractor) knowledgeable
about construction or renovation but...If anyone other
than consultant is used, a Plan Reviewer is required to
ensure compliance with FHA requirements.

Interest on Escrow

o The rehabilitation escrow funds (including the contingency reserve, financed mortgage payments, etc.) are placed into an interest bearing escrow account and will not be used for any purpose other than the payment of rehabilitation costs associated with the 203(k) loan.

Permits/Cost Savings

o All required permits must be issued by the local or state building departments prior to the request of a draw disbursement.

o Draw Requests should only be for the actual cost of the rehabilitation. Any costs savings should be used to make further improvements to the property, pay for costs overruns on another line item or pay down the loan balance.

For realtors, this program is a great way to market properties. Suppose you have buyer who loves the house being shown except the current owner has all the wallpaper, carpeting and d├ęcor in some strange design that turns off the buyer. Instead of losing the sale, suggest the 203K program to make the necessary changes. In fact, any house can be marketed as a custom house because the buyer can use 203K program as a Long Island mortgage or anywhere in the country to make any changes to a house with no out of pocket expenses.

Article Source: http://EzineArticles.com/2933922


Saturday, January 7, 2012

FHA 203(k) Program - Additional Funds For Property Rehabilitation


The Section 203k Program is FHAs primary program for the rehabilitation and repair of single family properties. It has been a great tool for community and neighborhood revitalization. Many lenders have successfully used the program to help borrowers purchase and rehabilitate properties.
How it Works:
Typically when a homebuyer wants to purchase a home in need of repair or modernization, the buyer will normally need to obtain financing to purchase the dwelling; then additional financing for the repairs/construction; and finally a permanent mortgage when the work is complete to pay off the original loans involved.
With the FHA 203(k) program, the borrower can obtain a single long-term mortgage loan to finance both the acquisition and the rehabilitation of the property. In order to provide the funds the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work.
When the loan closes, the proceeds for the rehabilitation/improvement will be placed into an interest bearing escrow account insured by the FDIC or the NCUA. The lender will release these funds upon completion of the proposed rehabilitation in accordance with the Work Write-Up and the Draw Request.
Example: $20,000 in repairs is needed on a home where the purchase price is $200,000. The total mortgage amount would be $220,000. $200,000 goes to the actual sale, while the remaining $20,000 is placed into an escrow account and will be paid out once the work is complete.
Property Eligibility:
The property must be a one to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable to the provisions of local zoning requirements. All newly constructed units must be attached to the existing dwelling.
Homes that have been demolished or will be razed are eligible provided some of the existing foundation system remains. The program can also be used to converts a one-family dwelling into a two, three, or four-family dwelling, and vice versa. An existing home (modular unit) on another site may be moved to the mortgaged property.
The loan may be originated on a "mixed use" residential property and condominium units provide it meets certain requirements. Visit http://www.HUD.gov for more details.
Eligible Improvements:
All repairs/construction must comply with the following:
1. New construction must conform to local codes and HUD Minimum Property Standards
2. To improve the thermal efficiency of the dwelling, the following are required:
-Weather-strip all doors and windows
-Caulk or seal all openings, cracks or joints.
-Insulate all openings in exterior walls where the cavity has been exposed.
-Insulate ceiling areas where needed.
3. Replacement Systems
-Heating, ventilating, and air conditioning system supply and return pipes and ducts must be insulated whenever they run through unconditioned spaces.
-Heating systems, burners, and air conditioning systems must be sized to be no greater than 15% oversized for the critical design, heating or cooling, except to satisfy the manufacturer's next closest nominal size.
4. Each sleeping area must be provided with a minimum of 1 approved, listed and labeled smoke detector installed adjacent to the sleeping area.
Luxury items and non-permanent improvements are not eligible. However the program may be used for such things as painting, room additions, decks and other items even if the home does not need any other improvements.
Required Exhibits:
The homebuyer must provide the lender with the appropriate architectural exhibits that clearly show the scope of the work to be completed.
The flowing are recommended exhibits, but may be modified by the local HUD Field Office:
-A plot Plan of the site is required only if a new addition is being made.
-Proposed Interior Plan of the Dwelling shows where structural or planning changes are contemplated.
-Work Write-up and Cost Estimate. Any format may be used, but the quantity and cost of each item must be shown. Cost estimates must include labor and materials sufficient to complete the work by a contractor.
Article Source: http://EzineArticles.com/2291119

Wednesday, January 4, 2012

Basics Of FHA 203k Loan Rates


Before you learn about the 203k loan rates, you must know what it means and how it affects your finance. Basically, the Federal Housing Administration (FHA) is a United States government agency that was established as a part of the National Housing Act of 1934. This agency was created with the following goals:
1. To improve housing conditions and standards
2. To provide a proper home financing system through mortgage loan
3. To control and stabilize the mortgage market
Sometimes FHA 203k loans are also called 'rehab' or 'fixed'. 203k loan scheme comprises two loans together - home improvement loan and credits for buying a new project. Following is a discussion regarding the advantages and disadvantages of applying for credits with 203k loan rates.
Advantages and disadvantages
The major benefit of a 203k loan is that you get only one scheme for both home improvement and purchase of a property. This reduces your paperwork and the costs that are incurred in the whole process. Being a government funded agency, the rates are quite competitive as compared to banks and other lenders. With 203k loan rates of interest buying a home that banks might otherwise not provide funding for, becomes easier.
There are not many disadvantages of a FHA 203k loan rates for funding home improvement or property buying project. It just takes longer to close. To minimize the disadvantages, there are many credit broking organizations that might help you to drift smoothly with your money management.
Working of 203k
This scheme can pay for a home and its improvement. The amount of the money borrowed that you are entitled to depend on your geographic location. The amount of coverage also varies accordingly. Generally FHA 203k loan rates of interest are for loans which are 110 percent of home's projected value after the improvement or purchase. There are also smaller schemes which allow you to take on smaller projects. 203k loan rates are based on the agreement that work must be finished within 6 months of closing. Remember that you cannot borrow extra amounts if you run out of the amount given to you. You must therefore consult with a good broking company that might help you with accurate estimation prior to application for the amount.
One such company is Great Northern Mortgage Corporation. You can get all types of solutions and services regarding mortgages, loans, debt consolidation, and managing your finances.

Article Source: http://EzineArticles.com/5083368