Tuesday, September 4, 2012

How to Finance Fixer-Upper Homes


If you are considering buying a home in need of repair or even finance needed repairs to a current home you own and finding financing is a bit tough for you, then the Section 203(k) loan program offered by the U.S. Department of Housing and Urban Development (HUD) may be a good choice for you. This program allows you to finance the purchase of a house or refinance your current mortgage and include the cost of repairs along with the mortgage.

The Section 203(k) loan program is HUD's main program for the rehabilitation and repair of single family homes. The loans are provided through HUD-approved mortgage lenders across the nation and insured by the Federal Housing Administration (FHA), which is part of HUD. Low and moderate income buyers can be eligible since the down-payment can be as little as 3 percent of the loan but this is really not an option for buying multiple houses since the property must be used as a principal residence by an individual or family.

How the Loan Works

A Section 203(k) loan is a 15- or 30- year fixed-rate mortgage or can be an Adjustable Rate Mortgage (ARM) . The total amount of the loan will be based on the estimated value of the house after the renovation is completed. A portion of the loan is used to pay for the purchase of the home, or if it is a refinance, to pay off any existing debt. The rest is placed in an interest-bearing account and is released in stages as repairs are completed.

You will be required that you use a minimum of $5,000 toward repairs or improvements and you normally have to complete the repairs within six months after the loan closes, depending on the amount of work needed to be done. The first $5,000 will cover eliminating building code violations, modernizing, or making health and safety-related upgrades to the home or its garage. You may add minor or cosmetic repairs after this requirement is satisfied but you cannot include improvements for commercial use or luxury items, such as tennis courts, gazebos, or new swimming pools.

The program has many rules and you should visit the HUD website at www.hud.gov to learn more about which homes are eligible to purchase using the 203(k) program and what types of improvements or repairs are covered with the program.

Once you have a property that you wish to purchase in mind, talk to your real estate professional, or if you are wanting to repair your existing home, you should find a HUD-approved lender who will help you understand the next steps and details of the 203(k) loan program. You also can contact a HUD-approved housing counseling agency or check the HUD website to get more information about the program.


Article Source: http://EzineArticles.com/2048866