It can be a real problem to secure financing if you find the house with the diamond in the rough. In your mind's eye, you know it will be the beauty of the block, but lenders don't share that vision.
Even if you are able to obtain financing for the purchase of the home, you will still have to face the daunting task of securing a second set of rehab funding.
|The "rehab loan" is FHA 203 (k), administered by HUD.|
|You can get up to $ 35.000 received.|
|You receive this loan at the time you purchase the home.|
|There is a bureaucracy, but consultants can help you with it.|
|You have to work off a list of permissible renovations.|
Help is on the way ..
It's not widely advertised, but something called the FHA 203(k) loan could be just the ticket to not only getting the renovation loan, but also the process so you don't spend more time with lenders than with architects and contractors.
Be warned that the FHA 203 (k) loan is not for everyone – even those who qualify – because of the inevitable red tape. In fact, HUD recognizes this and has established a program to certify independent 203 (k) counselors who can smooth the process for you.
What is an FHA 203 (k) rehab loan??
It's an all-in-one mortgage loan and remodeling loan issued by mortgage lenders and insured by the U. S. Department of Housing and Urban Development (HUD). You can save up to $35.Get 000 loan to improve your home.
Does the United States government personally want you to be able to fix this dream fixer upper? No not really.
But the U.S., through HUD and the FHA 203 (k) program, is concerned about the big picture: revitalizing entire communities and making sure the stock of existing homes doesn't implode. But you can personally benefit from these far-reaching motives.
Both steps combined: Purchase and remodel
Homeowners usually find a home in need of loving care first.
You get a first mortgage loan that only covers the purchase price of the home, nothing more, which is how all first mortgages work.
Lenders will not only add an additional $35.000 to distribute on the question; it would be a miracle if they did.
Next, the homeowner gets a second mortgage or HELOC (home equity line of credit) to pay for the remodels.
The problem: equity gap
One problem with this is that you must first build some equity in the home before you can take out another loan.
A worse alternative is to get an unsecured or signature loan for this remodel.Even if you can get an unsecured loan, the interest rates will be much higher than if you get a loan that uses your home as collateral.
But the FHA 203 (k) rehab loan is a bit of a miracle loan. You get money to buy the home and additional money to remodel the home.
Your intended home – given its condition – cannot act as adequate collateral (i.E. Security) for the mortgage loan.
What HUD / FHA does is fill that gap between the current equity of the home and the amount of the loan by insuring the loan. Essentially, it's like the rich uncle who comes in and says, "I'm going to act as a backer on this loan until the home can be improved."
- Loan: One first mortgage loan – not two – covers purchase and remodel.
- Good Push to Get Started : Since the program expects you to use the money for rehab, you need to start within a reasonable amount of time. This avoids years of procrastination.
- Longer closing time : Due to program requirements, your closing time is between 60 and 90 days.
- Limited choice of lenders : you can't choose a lender. Instead, you must work from HUD's list of approved FHA 203(k) lenders.
- Red Tape : To qualify for the loan, you must submit a detailed proposal, including architectural drawings.
List of permitted renovations
The permitted remodeling sounds restrictive at first. But keep in mind that these definitions can be stretched and still remain legitimate remodels.
HUD is concerned that 203 (k) funds will not be used for what they call "luxury items and improvements".
However, they also emphasize that "painting, room additions, decks, and other items, even if the home does not need further improvements" are within the scope of 203 (k). Allowed projects: