The 203k "rehab" loan is the most popular loan for fixer uppers. It allows you to buy a home that needs minor to major fixup and also loans you money for the work you want done. Here's how it works:
- Meet with a Mortgage Pro who is experienced in doing 203k loans and get preapproved. You will need to get preapproved for not only the purchase price but also the fixup costs you expect as well (for example $150,000 for the home and $25,000 for fixup= $175,000)
- Start house hunting with your Buyers Agent. Your Agent needs to be comfortable and knowledgeable about fixer upper homes. If this is not a specialty of theirs, you'll want to find someone else as they will be a huge part of the process.
- Write an offer and negotiate the purchase price on a home. You can still ask the seller to do some repairs even though you'll be having more done with your 203k funds.
- Decide what you want to have fixed up with the amount of fixup money you are approved for. Lets say its $25,000. You'll need to prioritize what you want to repair or remodel because you can almost always spend more and more money on fixup.
- Get bids from contractors on your priority list of fixup items. If work is minor like painting, you can probably do that yourself and not have to use a contractor- but ask your lender to be sure! Give your list of bids to your lender for their approval.
- Have appraisal completed that gives an "as is" and an "as completed" value. Your Mortgage Professional will order the appraisal and give the appraiser your list of repairs that you would like to have done.
- Close on the home and start the repairs within 30 days. You'll have 6 months total to get all the work done and your lender will pay for repairs at regular intervals as they are completed.
- Sit back and enjoy your fixed up home!
- Not all lenders are experienced with this loan so you absolutely must have someone with a track record of doing several 203k loans for other buyers.
- There are two versions of the 203k- Streamlined for under $35k in fixup and Regular for over $35k.
- The Streamlined 203k is only for non-structural repairs so no tearing out walls or fixing foundation problems.
- You can use an FHA loan with only 3.5% down payment with this program!
- Some safety and energy efficiency upgrades may be required as your first repairs.
Another resource for finding cash for fixup is this Lesson on the Fearless Homebuyer site.
Dave at Fearless Homebuyer. http://fearlesshomebuyer.com