Wednesday, May 16, 2012

Does That Foreclosure Need A Little TLC?

All across the US we have foreclosures sitting and waiting for an new owner. Some of the properties are in fine condition, but many are dilapidated and in disrepair. They sit and sit because traditional lenders will not lend on properties in disrepair. However, there is a solution to this and it can provide you and your family with a hefty future profit to boot.

FHA 203K and Fannie Mae Renovation Loans have been around for a while, but with the glut of new construction that occurred between 2001 and 2006 there wasn't much need for them. Not so anymore! All across the US foreclosures sit empty and unwanted, available at drastically reduced prices waiting for that buyer with enough gumption to take on the task of renovating a home. Every month I see buyers willing to take that plunge who end up sitting on 20-50% equity post close because they did.

How do Renovation Loans work? It's simpler than you think!

FHA 203K & 203K Streamline -- This loan works almost no differently than a traditional FHA loan. The qualification standards are that of regular FHA loans and the rates aren't that much different either. Here's the process..

1.) Buyer contacts an FHA approved lender for pre-approval & info on the proper format for the contract.

2.) Buyer locates a property.

3.) Buyer submits the sales contract and agrees to a price.

4.) Buyer forwards all credit docs to lender for credit approval.

5.) Buyer submits work write up to lender and appraisal is ordered.

6.) Buyer obtains contractor bids and hires contractor.

7.) Fully processed credit package is submitted to the lender and loan is approved.

8.) Loan closes for the purchase money and repair money is escrowed.

9.) 50% of the escrowed funds are released post closing to the contractor.

10.) Contractor completes work and remaining 50% of funds are released once the final inspection is completed

As you can see the process is pretty straightforward. The only difference between the 203K Streamline and the 203K full version is that a 203K Consultant is required for the full version. The scope and dollar amount of the repair determines if you will use a 203K or a 203K Streamline. The only caveat in the way we run the process is that we strongly recommend a consultant for almost all the 203K's we do. It seems to simply the process and it protects the buyer from unscrupulous contractors (or unscrupulous lenders).

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