FHA Loans for Distressed Properties?
I’m sure you’ve heard by now that FHA loans are making a huge comeback in the mortage arena. After all, it’s one of the only ways to obtain a loan with a low down payment (only 3.5% which can even be a gift) as well as a less-than-perfect FICO score (currently around 620). One of the main drawbacks, however, has been that the requirements for FHA loans have been a little more stringent regarding the condition of the property. This becomes an even bigger problem when you take into account that many of the more affordable homes now are REOs (bank-owned) or short sales, where the property has not been maintained very well. Well, I just wanted to share with you that THERE’S HOPE! It is possible to get an FHA loan for properties that are in need of some maintenance. How? I attended a seminar today hosted by Mortgage California with an emphasis on FHA loans. In addition to learning about some of the changes that have been taking place in requirements for regular FHA loans, we were also informed about FHA 203k(s) loans (or “streamline 203k”), which can finance a purchase AND improvements at the same time. This allows for up to $35,000 to be added to the loan amount to finance repairs, in which the loan agent would “prequalify” the projects needed. For example, say the purchase price for a property was agreed up on at $500,000. If there was $35,000 worth of work to be done, the purchase price would still be $500,000 but the loan amount would actually be $535,000.
Here’s a list of eligible repairs:
- Health and safety items
- Kitchen or bath remodels (including appliances)
- Replace windows, doors, and skylights
- Flooring, tile, paint, and other cosmetic items
- Section 1 repairs
- Upgrade HVAC and plumbing
- Patios, decks, and terraces
There are many more details which would take too long to cover in this blog, but suffice to say that this is an exciting product that you should look into if you’re thinking of getting an FHA loan to purchase a home that might need some work. There’s supposed to be another FHA product coming out soon which will cover more major work (possibly over $100,000!), and I’ll be sure to keep you posted on this. In the meantime, I’d love to hear your comments about whether you think these “rehab” FHA loans would be something useful for you or any of your clients.
HUD website with more details: http://www.hud.gov/offices/hsg/sfh/203k/203kslrp.cfm
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7 Responses to “FHA Loans for Distressed Properties?”
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Thank you Jean. That is exciting news, Once we all get used to the differences FHA is going to be a major factor in the real estate home sale recovery.
Most of what is being offered is not new, these programs within the FHA have been available off and on for over 40 years.
Now a whole new generation of home buyers can take advantage. There is something very special about all of that.
The most important thing we can do for the buyers today is learn more about all these options they have. Only then can they use good judgement and make sound decisions.
They should expect nothing less from their Real Estate Professional
Jean,
Thanks for the informative post.
That is really good news and open up a whole new
type of buyer.
Thanks!
Brian
Jean,
That is a great FHA program. It so helpful tounderstand FHA’s requirements before getting into the transaction.
Larry
Jean, great information on the FHA 203k product. I recently heard about it and I believe this product will not only help FHA buyers, but also help in reducing the inventory. Many first time buyers are looking at the lower priced properties and as you mentioned most are REO’s and Short sales that need repair. Add the all cash buyer to the mix and it appears that they are the direct competitor for these REO’s and Short sales. For the most part the al cash buyer will pay less, but will take the property “As Is.” Perhaps this new FHA product may help the first time buyer compete.
Jean,
It’s great that you discovered this. It could be the answer to the many FHA buyers who are looking at REO’s and Short Sales that need more work than the FHA normally allows.
Jean, this is a great product. Consumers are fortunate to have this option. I’d love to learn more about it.
Thanks Again Jean! Great information. Many people I speak with ask “what’s the minimum down for a home today?”. Of course I tell them about FHA loans and it looks like its just gotten better. It seems like there are more and more incentives and programs coming out to help encourage people to buy. Looks like things are continuing to get better.