Get financing for your home & renovation: FHA 203k Loan

Purchasing a home in need of renovation can seem like a daunting task for a lot of reasons. One of which is the idea of financing the renovation costs. It's hard enough these days to qualify for the mortgage alone but tack on an additional loan to renovate and it can appear impossible. Well there's no need to worry about that anymore! The latest thing to hit the mortgage world is called a 203k loan which allows you to incorporate the cost of renovation straight into your mortgage, one loan, one payment, one process. It's actually been around for a while but now more and more homeowners are being informed of this loan.

It's amazing that it's taken this long to come up with a 203k loan. To give you all of the details I'll leave it to an article from MortgageLoan.com because they sum it up very simply. I can also testify that the loan is legitimate, we have gone through the process on the contracting end for a handful of projects using it. On our end it is quite the pain, the paperwork for the contractor is beyond complex and over the top to say the least, but in the end it's a win win situation. The homeowner is able to get into the house and do the renovations they desire and we stay busy with work in a less than ideal economy.

Alright, the loan details...

Foreclosed properties can offer some great bargains, but they often require a fair amount of repairs to make them livable. Fortunately, there's an FHA program - the 203(k) loan - that enables home buyers to roll the purchase price and estimated cost of repairs into a single mortgage right up front.


The FHA 203(k) mortgage can cover repairs, improvements or both on a residential property. Unlike traditional financing, which typically requires separate loans to purchase the property, finance repairs and refinance everything into a long-term mortgage when the work is done, the 203(k) program allows everything to be financed through a single transaction.

Find a property, prepare an estimate
To qualify, a homebuyer needs to identify a property they wish to purchase, then come up with an estimate of the cost of the work that needs to be done. For this reason, the program can't be used for homes purchased at a foreclosure auction - you won't be able to fully inspect the property and come up with a reliable estimate beforehand. But it can be used to purchase an REO (real estate-owned) foreclosed property that's being offered on the market - a real estate agent who specializes in REO sales can be helpful here.

There are a variety of service that provide local listings of foreclosed properties available for sale, including the online listings of properties reclaimed by the four major government-affiliated agencies that insure mortgages - Fannie Mae, Freddie Mac, Veterans Affairs (VA) and the Department of Housing and Urban Development (HUD) - the FHA's parent agency.

A 203(k) is not limited to the purchase of foreclosed properties - it can be used for the purchase of any single-family home that needs repairs or that the buyer wishes to improve.

Loan based on improved value of property
Once a sales price has been agreed to and an estimate prepared of the cost of the repairs or improvements, an appraisal will often be required. Usually, an appraisal of the property's value after repairs or improvements are completed is all that is needed, but sometimes an appraisal of the as-is value will be required as well. In the case of HUD-owned properties, an appraisal may not be necessary - the agency's own listing of the market value, along with an estimate of needed improvements, is often adequate.
The loan is usually set to cover the appraised value plus the cost of the improvements, or 110 percent of the predicted appraised value of the rehabilitated property. In the case of older homes, a 10-20 percent contingency fee must often be included in the estimate of repairs.

Can cover home expansion
The rehabilitation work can be fairly extensive. These may involve adding extra rooms, converting a multi-unit building to a single-family home, or a single-family property to multiple units. Luxury items may not be covered in the improvements, but the work may include certain amenities such as the addition of a patio or deck.

Buyers can do some or all of the work themselves, but must be able to show they are qualified to do so. Self-contracting can also drag out the application process - using a licensed contractor will make things go much more quickly, though the homebuyer can still do some of the work once the contractor has prepared the estimate.

Streamline option for minor upgrades
For properties which need only minor work, the FHA offers a variation called a 203(k) Streamline, which provides loans of $5,000-$35,000. These can include painting, window replacement, basement refinishing, floor replacement or other improvements for which plans, consultants or engineers are not generally required.

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Luxury Homes in Disney World!

According to the Wall Street Journal, it's the latest idea from Disney, creating a development of luxury homes allowing for a new way to experience "Disney" and the Orlando area. The Golden Oak housing development will offer homes from $1.5 to $8 million. It is expected to hold 450 homes and a new Four Seasons hotel. There are plans for a clubhouse, parks, walkways, and a wet lands conservation all of which is expected to be completed in 8-10 years. Considering the fact that the area holds one of the highest foreclosure rates in the nation it is quite an interesting marketing idea, no?

But it isn't the first time that Disney has created a housing development. Celebration was a 4900 acre community built adjacent to the theme parks in the mid 1990's. But it was a much different idea, there were apartments available for $600 a month all the way up to single family homes at $4 million. It encompassed an opportunity for a larger variety of people to move in, unlike the highly inflated Golden Oak resort community.

I'm not sure that I would take as big of a gamble considering the state of the economy and the housing market in general let alone the horrid housing market in the Orlando area! But it IS Disney... if anyone could succeed in such a venture it would be Disney, Oprah, or Donald Trump right?! So we shall see how this plays out.

All you need is a $25,000 deposit to get on the sales reservation list.

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6 Reasons the Housing Market Hasn't Recovered & Why You Should Renovate NOW!

Stumbled on a very insightful article from US News on the 6 Reasons the Housing Market Hasn't Recovered. I'll do my best to paraphrase the important parts but it calls to attention a great detail to keep in mind, now is the time to remodel and renovate your home.

It's pretty clear from the national news, economists, and government reporting that the United States economy is in some pretty bad shape and likely won't really start the uphill climb for a few years, if not more. So while we wait for the market to return you might as well get the most out of the home you're currently in. Not only does this benefit you but it also puts you in a better position to sell your home in the future. As an added bonus (and much to our dismay as professionals) construction costs are at an all time low which means that you can cash in on the savings and be able to complete projects that may have otherwise been out of the budget.

So keep that as food for thought and now onto those 6 Reasons the Housing Market Hasn't Recovered...

1. Record Unemployment. The unemployment rate is sitting at just under 10%!! That's a LOT of people out of work! It's a pretty simple concept, when there are no jobs no one can afford a house nor can they qualify for one. What's worse is that this knowledge destroys consumer confidence. The result? The people who are maintaining a job avoid homeownership like the plague for fear that they too may lose their job and be left with a mortgage they can no longer pay for. Until our job force returns the entire real estate realm is going to be in a holding pattern.

2. Household Formation. Typically people "form" a household and move into their own home. With the state of the current economy people are no longer forming new households and are instead combining them. Families are moving in together, children are moving back home, relatives are combining households, all as a result of the lack of income, which is directly related to the job market. In fact the number of new household formations over the last year has seen the second smallest increase since 1947!

3. Foreclosures. Not at all surprising, the number of foreclosures out there on top of typical new construction mean a highly oversaturated market. RealtyTrac execs expect the number of foreclosures to exceed 3 million properties by the end of the year with 1 million more in bank repos. And with the growing number of layoffs and families still struggling to meet their mortgages the numbers will only increase from there. See the vicious cycle here??

4. Tight Credit Standards. Mortgage rates are hitting all time lows so why isn't everyone jumping into new homes.... because they can't qualify for a mortgage in the first place. Banks have been hardened with the blow of bad loans so they're requiring some serious ante from prospective buyers outside of their first born son. To take advantage of these great rates you're going to need a FICO score of 720 or better, outside of FHA loans, and anywhere from 10-40% down. Not exactly the profile of most Americans right now....

5. Falling Home Prices. You'd think that cheaper prices would stimulate the market but here we go with the consumer confidence aspect again. With the news blaring about slumping home prices it drives in the message that owning a home is BAD thing right now. "Don't get yourself stuck in a home loan... do you see what's happening to people out there right now... they're upside down.... they're losing everything... they're stuck in their home forever." These implications aren't quite sending a positive message about homeownership! So those folks that would be prospective buyers are bailing from the sinking ship.

6. Selling your current home. If you're one of the millions out there committed to a mortgage already it's a daunting task to think about buying a new home because you have a giant black cloud looming over your head. In today's market 1 in 4 homeowners is upside down on their mortgage, they have negative equity. So in order to get out they would have to take a loss on the property and not too many folks are rushing in to do that!

It all goes back to the number one issue, the economy.... bad economy means no jobs, no jobs means no loans, and no loans mean no home sales. So as unfortunate as the situation may be it's not a bad idea to stay put while the dust settles and take advantage of some of the positives of the economy, like cheap construction costs to get your home improvement going.

~5280 Lady

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