Do you need rehab with that purchase?

If you have been shopping for homes, you have probably seen several foreclosures and short sales. Maybe you found a house in the perfect location at a great price, but the kitchen and bathrooms are still in 1970s decor.  There are some great loan programs out there that can help you obtain that property plus give you funds to get those rooms up-to-date.  Here are two:

OPTION 1: FHA 203(k)

The bread and butter of rehabilitation loans is still FHA’s 203(k) loan. FHA has two forms: 1) the regular or full version and 2) the limited repair program or streamline. In both cases, the minimum down payment is 3.5%, which is calculated based on the total of the purchase price and the amount needed for the rehab. Currently, FHA allows for seller credits up to 6% of the purchase price for closing costs. Both programs can be used on detached single family homes, condominiums, attached single-family, 2- to 4-unit properties, and mixed-use properties. As a side note, investors need not apply … this loan is only for those who plan to occupy the property after the work is completed.

With the full version of the FHA 203k, there are no significant limitations on the amount or type of repairs as long as a part of the foundation remains intact. There must be a minimum of $5,000 of required repairs, which is easy to find on most homes; as long as the after-appraised value makes sense, you can do just about anything in renovation.

FHA’s limited repair program, also called the FHA 203(k) Streamline, allows for a maximum of $35,000 of repairs, including any contingency reserve. This program is ideal for light remodeling and updating projects, such as new floors, kitchens, bathrooms, and paint. However, no structural changes can be made to the property under this loan program.

One little known tidbit is that both FHA 203(k) programs can be used to purchase HUD REO’s. In Illinois, there is currently a sales incentive on HUD properties. Owner occupants can obtain a $100 down payment loan through a HUD-approved lender.

OPTION 2: HomePath Renovation

In an effort to reduce the number of properties on its books, Fannie Mae is offering a special renovation loan program for the purchase of Fannie Mae REO’s. The HomePath Renovation Loan requires just a 3% down payment. The renovation amount cannot be more than 20% of the estimated “as completed value” or $30,000, whichever is less. Fannie Mae is also offering a closing cost credit of 3.5% of the purchase price. As great as this loan program is, it can only be used on properties listed on Fannie Mae’s HomePath website and, just like the FHA 203(k) loan, it is only available to borrowers intending to occupy the property. The most significant feature of the HomePath loan is no mortgage insurance is required.

Sound Great? Here’s Your Next Step …

Though both the FHA 203k and HomePath programs generally require a licensed contractor to complete the work, these are great options for you to finance both the purchase and renovation of a property!  Contact me if you want to get pre-approved for that perfect property or need more information on any of these loan programs.