- Aged inventory - many houses are old, have not been updated which includes kitchens, bathrooms, plumbing, HVAC, and could really use a face lift.
- Foreclosures galore! The market is saturated with foreclosed REO properties that need repairs.
- Older homes with outdated floor plans or are too small compared to other homes in the area (by the way part of the renovation process can include adding square footage to the property through an addition to home)
- Can add a personal touch to make it yours - turn a home you just like into one you love
- Many homes with health or safety violations or hazards which can be remedied through renovation
- Many many more reasons.
So what can be done about it? Well you can call it a secret (not really) but a program that has been around since the 80's - the 203k (no this isn't like your 401k) - allows the for the purchase of the property plus the cost for repairs to be rolled into one loan, one payment, and your maximum mortgage is based on the post-renovation value. This is a little known loan through FHA and 203k is simply just the section of the act (the National Housing Act) for the program just like the 203B is the "regular" or "normal" FHA loan we've all grown to know very well.
Especially since the housing debacle and Conventional financing has tightened up; more people are getting FHA insured loans.
So you can literally turn this
and even this
Now you're probably thinking..."yea right, that looks nothing like the other houses." But yes you can do this (turn ugly into stunning).
You can do anything from light to moderate repairs (kitchen and bathroom updates) to more major renovations like foundation work, and even tearing the house down and rebuilding on the same foundation.
With the 203k you just can't do anything consdered "luxury" repairs in nature like a gazebo, hot tub, or install a swimming pool. The key to this is after-improved value - which is the home will be comparable in it's renovated state to other properties in the area.
This doesn't mean build a 6 bedroom home in a 3-4 bedroom market, however if you wanted to change the design and floor plan of the property and make a major renovation you can.
There are so many things you can do with this type of financing. By the way FHA isn't the only one that has this program available. Very close versions of this are available in the Conventional world through Fannie Mae and Freddie Mac but most lenders do not offer this type of financing.
I think you'll see that change as this piece of the market explodes over the next few years.
One word of advice that I caution people looking to obtain this financing:
MAKE SURE you are working with a specialist. The reason is they work with these loans daily and a specialist only originates these loans. You'll have many originators that "dabble" with these loans and only do a few a year vs a specialist who originates these on a daily basis so they are knowledgeable of the intricacies of the program and have a system in place to take you from application to closing with very few, if any, hiccups.
Don't be a guinea pig and search out a specialist. This should be your first question to the loan officer. If they are not a specialist ask if their company has one and if not - move on and don't waste anymore time.
Not all lenders have the same guidelines; some will have what is called credit overlays, meaning they have tighter guidelines than the published FHA guidelines on the program.
I will do a series of blog posts on this, since it will, and already is becoming, a hot topic. There is much to talk about, so you can be prepared and armed with information when approaching your lender for a renovation loan request.
God Bless
P.S. if you like this blog check out my other blog http://www.livingwithnolimits.net
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