The Denver real estate market offers some homes with redeeming features but at the same time require renovations far exceeding the budget of most buyers. When this happens it is comforting to know there is a loan program that allows a buyer to fix up the home and combine the fix up costs into one original loan.
This program is called the FHA 203k loan. It allows the borrower to use up to $35,000 in funds for improvements to the property. The loan amount is restricted to the lessor of:
- Statutory maximum mortgage limit for area (each county is different view FHA limits in your county here)
- "As is" value (usually the purchase price or outstanding debt in case of a refinance transaction) plus cost of rehabilitation)
- 110% of "After Improved" value,
- Condos limited to 100% of "after improved" value
- if owned less than 10 years, acquisition cost used to determine the maximum loan amount.
FHA 203k loans can be used for purchasing 1 unit to 1-4 unit single family residences. They must be owner occupied. The buyer may not get cash-out refinancing. Borrowers may use the program for Energy efficient Mortgage in conjunction with Streamline (K).
The FHA 203k funds can be used to:
- Update homes
- correct health and safety issues
- Pay for higher cost items, i.e. roof, etc.
Getting a FHA 203k loan comes with a whole string of requirements. It is a good idea if the borrower works with both a lender and Realtor who is familiar with the process. If not, one can find themselves in a sticky situation that may be difficult to extricate oneself from.
FHA 203k Loans are good if:
- Borrower is in a hurry (most loans take at least 45 days)
- The property value will not increase upon rehab (not a good deal to begin with!)
- Borrower is not a general contractor and want to do the work himself (lender prefers a professional to rehab)
- Property needs MAJOR rehabilitation or repairs are structural in nature
- Repairs requiring detailed drawings or exhibits
- Any improvements requiring 3 months or longer
- New constructions - including room additions
Even though th process is a little demanding the end result will be worth the effort. The borrower can get in for only 3% down, have a competitively priced interest rate, one fixed-rate mortgage and a home that has been renovated.
The joy of knowing you can own a renovated home and pay for it over the course of 30 years is a good benefit. If you would like to take advantage of the foreclosure market in Denver, let's talk. Perhaps we can find a way for you to use the FHA 203k mortgage program and put some instant equity in your pocket!