Tuesday, August 14, 2012

Home Equity Loan Meltdown Causes A 203K Loan Rebirth

I was reading an article the other day that said the home equity loan market could lose over 65 billion dollars this year. It doesn't seem that long ago that if you didn't use a first and second mortgage combination loan to purchase your home that you could get a HELOC up to and even in some cases over 100% of the value of the home before the ink dried after you signed your final loan papers. This was the case with many a California real estate loan.

As long as you had decent credit, you were able to get a HELOC without a problem. In our existing economic climate many lenders are losing their entire HELOC balance. A typical foreclosure involving a California real estate loan simply doesn't have enough funds to payoff all the mortgages owed on the property.

The result has made it much more difficult to obtain a HELOC or second mortgage for homeowners in todays market. You need at least 20-30% equity before a bank will consider lending in second position. It's understandable but unfortunate.

The 203k loan which has been around for over 30 years is enjoying a rebirth of sorts with the home equity market on the brink of a meltdown. The 203k loan I'm referring to is the 203k streamline. The 203k streamline allows prospective applicants to purchase a home plus receive up to $35,000 in additional funds to fix minor cosmetic repairs on the home such as new carpet, cabinets, interior and exterior paint jobs, flooring, a new roof, HVAC unit, countertops, and even appliances just to name a few. You get half the funds upfront after escrow closes typically to cover materials and the other half after all the projects are deemed as finished.

This loan could be looked at as a $35,000 home improvement equity loan. It is an FHA loan so all that is needed is a 3.5% down payment and a 620 FICO score and you get to wrap up the purchase money loan along with the $35,000 all into one low fixed rate loan. Lenders may have additional guideline overlays for qualifying.

The 203k streamline is also used for refinances as well. Many people don't realize this, but if you are an existing homeowner and you don't have the 20-30 percent equity needed to obtain a cash out refinance loan, the 203k streamline may be available up to a 97.5 loan to value. If you are in need of some of the minor home improvements listed above and you lack equity the 203k streamline refinance loan is worth checking out.

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