With so many REO’s (bank owned properties) there is no telling what state some of these homes might be in. You may fall in love with the neighbourhood, the location or some other attribute of the home and even properties in distress. You don’t have to give up on the property just because you may not have the means to fix up the place. The FHA offers a program which allows you to wrap in the cost of fixing up a place all within one loan. It’s called the FHA 203(k) program.
Under the 203k you are allowed to purchase or refinance a property and finance the construction costs for home improvements at the same time. The loan amount is based on the projected value of the property with the work completed. The 203k program is excellent for properties that need home repairs to be liveable or for home buyers that want to give a home a makeover.
Many listing agents who represent properties in need of repair have used the 203K program to market these distressed properties. This program allows borrowers that otherwise could not purchase the property to buy it and do the necessary rehabilitation. Some contractors who are familiar with the requirements of the 203k program will put together a proposal for necessary repairs on the property listed for sale. The agent can then market the property similar to a new build. The buyer can pick the paint color, cabinets, flooring, etc.
Many buyers agents use the program to find homes for their clients at bargain prices or to make a potential home work when it needs a little help.
Many lenders have stayed away from this program because on the additional layers of risk involved and some have added additional requirements to those of FHA. From our experience the key to a smooth transaction is to have an experienced, reliable 203k consultant and contractor. Surety companies can be very helpful in this type of transaction. This program will take longer and will be more stressful than a regular FHA loan even with the most competent team. The process can be a nightmare if your team is lacking. However, if you work with the right group of professionals who are experienced then you don’t have to pass up on a REO just because it needs a little bit of love.