FHA Loans and Home Remodeling and Fixer Uppers

How many of us have wanted to purchase a home that needs obvious repairs or you desire a small change with a kitchen, bathroom or other part of the newly acquired home?  This is a very common circumstance. 

HUD’s FHA program has programs that can make it easy for you to begin new home repairs or home remodeling immediately and acquire a home loan for a house that has these requirements. 

Many lenders will not fiance a home that is in immediate need of home repairs.  HUD’s 203 (k) program will help you navigate through buying a home and including the cost of improvements or repairs in your home loan. 

HUD’s 203(k) Program

HUD’s 203(k) FHA insured loan program helps you find a mortgage broker, all around the country, and will get you into a home that needs the repair costs in the original home loan.  Your down payment on a 203(k) loan, as an owner occupant, is about 3.5% of the purchase price combined with home repair costs.  You have to do the following to make it happen:

1) Home buyer signs a buy-sell agreement on a home.  The buy-sell or sales contract states that the home buyer desires a 203 (k) loan and the contract is contingent upon the bank approving the loan with home repair money added into the package.         

2) You as a home buyer then choose an FHA approved 203(k) lending institution and arrange for a detailed loan package disclosing the home repair work to be done and associated costs on a line item basis. 

3) A valid home appraisal is conducted to asses property value post home improvements.

4) The loan closes for an approved amount after credit eligibility is determined.  This amount will include the cost of the property, closing costs and fees, and home repair costs or remodeling amounts.

5) The seller, at closing, is paid in full and the balance of the funds are placed into an Escrow account to pay for the home repair effort that will be undertaken buy the new home buyer.

6) Once the loan is closed, the mortgage payments that include the cost of the home will begin for the home buyer.  You can decide to have up to 6 payments put into the loan that will cover you during the time the home is not occupied.

7) Escrowed amounts will be given to you as the home buyer during the home repair period or while construction crews are present via a draw request system.  To make sure that the repairs are completed in full, 10% of each draw request will be held back until the lender determines that that there is no more work to be completed and the repairs meet the appraisal targets.

HUD’s Streamlined 203(k) Program News

A new and streamlined FHA insured 203(k) program has been developed by HUD and it is referred to as “Streamlined (K)”.  This represents a limited home repair program and allows home buyers to add up to 35,000 dollars to their mortgage for improvements prior to moving in the home. 

New home buyers can immediately secure the cash required to pay for these repairs that are pre-agreed upon by the buyer, appraiser and home inspection company.

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The official U.S. Government FHA Web site is HUD.gov