HUD & FHA has the 203K loan and Fannie Mae the HomePath
Renovation Mortgage; but what are these things and what are the rules?
Both of these mortgages are aimed at modest income buyers
who intend to live in the fixer-upper homes that they are buying. They do not
apply to investor purchases. Both are set up to allow the borrower to borrow
more than the sale value of the house, so that they have money to pay for the
improvement of a property that may be run down or damaged at the time of the purchase.
During the depth of the recent Great Recession many homes
were foreclosed by lenders or ended up on the books of HUD, FHA, Fannie Mae or
Freddie Mac. Oft times the foreclosed owners would strip the house on their way
out, taking all of the appliances, lighting fixtures and anything else they could
easily remove. If the owners did take it, thieves and vandals often stripped
these house, sometimes even taking the copper plumbing out of them., leaving
empty hulks that were not habitable.
For a long while, these damaged foreclosed houses were
mainly bought up by investors at very low prices and then rehabbed and flipped
back on the market. Investors made quite a good living doing that while the
prices were depressed. More recently, with prices rising, investors have
stepped back out of the picture and people who want to buy a house to live in
have been the primary buyers. Programs like the 203K loan and the HomePath
Renovation Mortgage were invented to encourage that owner-occupied trend, by
providing a means for the buyer to get the money needed to rehab the houses up
front, as a part of the mortgage.
The idea behind these special mortgages is fairly simple – a
buyer gets estimates on the needed repairs and commits to make those repairs
with the extra money within a specified timeframe. Also, the requested money
and the repairs that they will fund must make sense in terms of actually
increasing the value of the home up to the total value of the loan. So, an
appraiser and the banks make the call that the house will be worth the amount
being borrowed, once the repairs/updates are made. With a regular FHA 203k, the
maximum amount you can get is the lesser of these two amounts: 1) the as-is
value of the property plus repair costs, or 2) 110 percent of the estimated
value of the property, once you do the repairs. HomePath has similar loan
limits.
There are quite a few rules in place in either program to
make sure that fraud doesn’t occur and to limit the participation in the
programs to those with true need. The bottom line on these programs is that you
can get the money needed to make the house habitable, including buying new
appliances to replace those that might have been removed and to make repairs,
but only up to a reasonable limit and only if the house and you qualify under
the programs guidelines. Rather than try
to explain those guidelines in detail, I have researched some good reading for
you to do on these programs.
So, do the reading below and learn about these programs. You
should be able to tell fairly quickly whether or not you might qualify. Then,
get with your lender and see if they have products that support these programs.
If not, find a lender that does do these loans. You can get a new home, even if
it needs work before moving in, by taking advantage of these programs.
To read more about the 203K loan go to - http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/203kabou
Or
To read more about HomePAth loans go to –
or
Freddie Mac has a similar Renovation Mortgage program, which
you can read about here –
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