Posts Tagged fha
FHA 203k Loan Information
Posted by Victoria Belle-Miller in Finances on 03/05/2010
FHA home loans, which are insured by the Federal Housing Administration (FHA), are great financing options for any homeowner who wants to purchase a house or refinance his or her current mortgage. These loans have low interest rates and usually only require down payments of 3.5 percent! FHA loan requirements are simple, so current and potential homeowners are more likely to qualify for these loans than other types of loans.
FHA 203k Rehabilitation Mortgage Insurance Program
The FHA has a specific loan program to help homeowners who want to make improvements or repairs on their home, but do not have the funds to do so. These loans are called FHA 203k loans and can be used for either a purchase or a refinance. There are two types of loans in this program, one loan is for repairs that cost less than $30,000 and the other loan is for repairs that cost more than $30,000.
A streamline FHA 203k option is also available to homeowners who are interested in doing non-structural repairs or improvements. This loan requires less documentation and can be less costly. It allows a homeowner to finance up to an additional $35,000 into his or her mortgage in order to make improvements to the home. An FHA home inspector or appraiser can identify home repairs that need to be made.
How the Loan Can Be Used
Although there are some restrictions on what the loan can be used for, there are plenty of renovations and home repairs that the loan does cover. In general, these include modernization, eliminating safety or health hazards, making a home more accessible for individuals with disabilities, or making a home more energy efficient. More specifically, the loan can be used for roofing, plumbing, flooring, painting, minor remodeling and more.
Loan Requirements
There are certain requirements with this type of financing. Homeowners must spend at least $5000 on their home repairs in order to be eligible. Homeowners must get cost estimates from a licensed and insured contractor(s) before signing the sales contract. The total cost of the mortgage, including the repairs, must remain within the FHA loan limits for the county in which the home is located.
This loan cannot be used to flip houses, and the homeowner must use the loan on the home in which he or she lives. The work being done on the house must begin within 30 days of the loan closing. All work must be completed within six months to comply with the loan requirements.
If a homeowner wants to make repairs to his or her home and needs additional financing, this type of financing could be the best option. Many of the same eligibility standards used for standard FHA home loans apply to the FHA 203k loan. Most lenders will require that the borrower have a credit score of at least 620 to be eligible. To qualify for the loan, certain energy efficiency standards, as well as certain structural standards, must be met.
This loan could be great solution for homeowners who want a better way to finance home repairs and improvements without depleting their savings.
Victoria Belle-Miller is the newest member of the FHAMortgageBank.com writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the FHA loans team and a valuable source of sound mortgage advice.
FHA 203K Loan Makes Financing a Home in Need of Repairs Simple
Posted by Anne Johnson in Finances on 02/25/2010
The FHA 203K loan is a type of financing that is insured by the Federal Housing Administration. It is a unique type of financing that allows homeowners to obtain both a purchase loan and rehabilitation financing in the same transaction. Before this transcendent loan program, a homeowner had to obtain an initial, temporary loan to purchase the home and a separate rehabilitation home loan to make any necessary repairs. Only after the repairs were complete could the homeowner gain permanent financing for their newly improved home.
FHA 203K: How does it work?
The FHA 203K loan was designed to streamline the process of buying a home in need of repairs. In order to provide funds for the repairs, the loan amount is based on an expected future appraised value that takes into consideration how much value the completed repairs will add to the current value. Up to $35,000 over the purchase price of the home can be financed into the loan to cover the cost of repairs.
The contractors chosen by the borrower to do the repairs will receive the money for their work in two draws. One draw is for 50% of the work and is disbursed at the beginning of the repairs while the remaining 50% will be disbursed after the work is completed. The repairs must begin within thirty days of the closing of the loan and must be completed within six months. The amount paid to the contractor(s) must be determined before the loan closes by obtaining written bids on material and labor costs. The homeowner can do the work himself provided that he is a licensed and bonded contractor.
What types of repairs will the FHA 203K cover?
Some of the repairs eligible to be completed with the funds from an FHA 203k loan include: roof replacement, electrical or plumbing work, kitchen remodeling, accessibility renovations, appliance purchases, and painting. Although many cosmetic renovations are allowed, luxury items and upgrades are not permitted. Also, any funds needed to repair to any detached structures, like sheds, swimming pools, and gazebos, may not be included in this loan amount.
FHA 203K: Qualifications
The FHA 203K program has the same types of eligibility requirements that exist on any FHA home loan. A homeowner must qualify on the basis of both credit and income to be eligible and the property must be FHA approved. As a general rule, the monthly mortgage payment cannot exceed 41% of the borrower’s monthly income and most lenders require at least a 620 credit score. Homes that qualify include: FHA-approved condos, 1-4 unit homes, and planned urban development homes (PUDs). The construction of the home must have been completed at least one year prior to financing in order for the home to qualify.
The FHA 203K program can be a great tool for any homeowner looking to renovate or repair his or her home. In a housing market that has seen foreclosures reach record highs, the FHA 203k loan can not only provide potential home owners with more opportunities to purchase a home, but can also help rebuild the housing market by facilitating the rehabilitation of foreclosed properties.
As a former psychology major, finding solutions to resolve problems has always been a subject of interest to me. I hope that my writing will give people the confidence to make important decisions about FHA loans. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers!
Lenient FHA Loan Guidelines Make Now a Great Time to Apply
Posted by Victoria Belle-Miller in Finances on 02/21/2010
FHA loans are a great option for first time homebuyers on the house hunt, as well as current homeowners who are looking to refinance their current mortgages. These loans offer low down payments, as well as low interest rates, which helps keep monthly mortgage payments low. This type of financing, which is insured by the Federal Housing Administration (FHA), also has more lenient credit and income qualifications than most other home loans. Even potential borrowers who have less-than-average credit scores may still be able to qualify.
Loan Eligibility
It is typically easier to qualify for this type of financing, compared with other types of home loans. While the FHA does have lenient credit score and income requirements, most lenders require that applicants have a credit score of at least 620 to qualify. The FHA also requires that applicants have a clean credit history of at least twelve months, meaning they have had no delinquent mortgage payments during the twelve months preceding their application. The house an applicant wants to finance must be his or her primary residence, which means they plan to live there at least six months out of the year.
Loan Requirements
This type of financing requires that the borrower make a down payment on the home being purchased, as well as monthly mortgage payments. The down payment can be as low as 3.5%, which is much lower than down payments on most other home loans. Applicants will also have to pay an upfront mortgage insurance premium on the loan, which is currently equal to 1.75% of the loan amount.
Before the loan can be closed, an appraisal will need to be done on the home to ensure that the home meets all of the minimum safety standards that the FHA requires and to document the value of the property. Borrowers also will be required to escrow their homeowner’s insurance and property taxes, which ensures that everything is paid up to at least one year.
There is interest on the loan, but it is typically lower than conventional loan rates. And borrowers can opt for fixed interest rates so that their rates remain unchanged over the life of their loans and their monthly mortgage payments are consistent. This option would be especially good for borrowers who have had credit issues in the past.
Loan Refinance
For a current homeowner, refinancing with an FHA loan could lower his or her interest rate, which could also lower the monthly mortgage payment. Refinancing also gives homeowners the option of changing the terms of their loans. They can extend the length of their loans or change from adjustable rates to fixed rates, which could save them thousands of dollars in the long run. With the cash-back refinancing option, homeowners can take out a loan for a higher amount than the amount needed to pay off their current mortgage and use the rest to pay off large bills or cover other expenses. There are no restrictions on how a homeowner can use the cash.
Apply Now Before Requirements Change!
This type of financing offers several benefits and has relaxed guidelines. A borrower who does not have a lot of money for a large down payment can still become a homeowner with this type of loan. Current homeowners can save money every month by refinancing and getting lower interest rates, as well as receive cash back for other financial needs.
The FHA will be changing their requirements in the next few months, so now is a good time to speak with a FHA loan specialist to determine whether this type of financing is right for you!
Victoria Belle-Miller is the newest member of the FHAMortgageBank.com writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the FHA loans team and a valuable source of sound mortgage advice.
In a Journalistic World Full of Opinions on Reverse Mortgages, Where is the Truth?
Posted by Anne Johnson in Finances on 02/08/2010
One month into the year 2010, many people have heard at least something-good or bad- about reverse mortgages. This product has become extremely popular in the last couple years and its popularity continues to rise. However, with popularity also comes criticism. Every article that is published seems to be a minimal amount of information clouded by a storm of opinions.
Although this product is different from any currently on the market, reverse mortgages are a still lien on a person’s home, just like traditional mortgages. Unlike traditional mortgages, a reverse mortgage does not require a person make monthly mortgage payments for as long as they live in the home.
Reverse mortgages are used so homeowners over the age of 62 can pay off their existing mortgage and obtain access to additional funds. Once a homeowner has taken out a reverse mortgage, they will never have to make a monthly mortgage payment again. This federally insured product does require that the homeowner remain current on real estate taxes, homeowner’s insurance, and home repairs. Provided that the homeowner maintains his obligations, the reverse mortgage will not become due until the homeowner moves away or otherwise vacates the home. If the homeowner fails to meet these obligations, the reverse mortgage could become due and payable before the homeowner leaves the home.
The federally insured reverse mortgage does have costs associated with it, just as all financial products do. Most of the up front costs associated with the product go directly to the government so that the reverse mortgage remains a non-recourse product. It is considered non-recourse because, assuming the homeowner continues to respect his contractual obligations, he will never owe more than the fair market sale value of the home.
Reverse mortgage benefits can help people who cannot comfortably afford their mortgage payments, health care, and daily expenses. Important to note is that this product is something which should be discussed with the homeowner’s heirs. In order for the home to remain in the family after the homeowner has passed away, the estate will be responsible for paying off or refinancing the reverse mortgage. This loan should not be considered if a homeowner wishes to leave a mortgage-free home to their heirs because it is a loan and does need to be repaid.
It seems that some critics are unclear on many important facts about this loan. The fees can be a little higher than traditional mortgages, but the interest is not. Also, the largest fees go directly to the government for insuring the reverse mortgage, not to the banker to make a quick buck. For homeowners who could use this product, the benefits strongly outweigh the costs.
There is a lot of misinformation surrounding reverse mortgages. This product is not right for everyone, but also should not just be used in the case of last resort. It can greatly help senior homeowners enjoy their retirement and the protections surrounding the mortgage continue to improve. Hopefully, the product will be around for many years to help seniors without enabling anyone to take advantage of them.
As a former psychology major, finding solutions to resolve people’s problems has always been a subject of interest to me. I hope that my writing will give people the knowledge and confidence to make important decisions about reverse mortgages. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers!
FHA Loans Can Still Provide Many Benefits
Posted by Anne Johnson in Finances on 02/08/2010
Many prospective homeowners and mortgage professionals have heard that the regulations for FHA loans are changing. After the sub-prime mortgage industry died down, the FHA home loan program became the scapegoat for any and all problems associated with the housing market. Critics believe that the FHA loan program is too lenient on its credit requirements. Because of this constant scrutiny and other outside criticisms, the FHA has decided to make some significant changes to its qualifying requirements for its home loan program.
In past years, the FHA home loan program did not require a specific credit score in order to qualify for their loans. Although most lenders required at least a 620, many critics of the FHA’s program believe that the lack of a credit score requirement has led to the large number of defaults after the housing market crash. In order to prevent this from happening in the future, the FHA’s new rules state that a borrower must have at least a 580 credit score in order to take advantage of their 3.5% down payment program. If an applicant has a credit score below 580, they must put at least 10% down on a new home.
A protection that has always existed on FHA loans is the required mortgage insurance. Mortgage insurance provides benefits for both the homeowner and the lender. This type of insurance helps the lender because it ensures that they will be paid in case of borrower default. Because the lender knows that the loan is insured by the federal government, they are more likely to offer favorable terms to the borrower.
A new change to the FHA’s mortgage insurance raises the up front premium by half a percent from 1.75% to 2.25% of the loan amount. This effort is a way to ensure the sustainability of the FHA loan program. The FHA is currently trying to obtain Congressional approval to increase the annual premium. If this approval is granted, the FHA would reduce the amount by which they increased the up front premium. Some FHA officials have discussed making the premiums risk based, which would mean that the premiums would vary depending on credit score and history.
The last protection which the Federal Housing Administration has decided to implement with these changes is a reduction in allowable seller concessions. When these new regulations go into effect, the seller will only be able to provide 3%, whereas before, the seller could provide up to 6% of the purchase price. These regulations are all set to take effect in April, 2010 and are an effort to increase the quality of FHA loans.
Only time will tell if these regulations will have the desired effect and increase the quality of the FHA home loans issued. Many homeowners are in agreement with the changes because they want the housing market to bounce back quickly and believe that the best way for this change to occur is to require more of prospective homebuyers. Other homeowners believe that, while encouraging people to improve their credit is beneficial, restricting home loan applicants does more to hinder the housing market rather than stimulate it. Hopefully, these new changes will have a positive effect and help the housing market grow and prosper.
As a former psychology major, finding solutions to resolve problems has always been a subject of interest to me. I hope that my writing will give people the confidence to make important decisions about FHA loans. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers!
Get Low Rates With an FHA Loan
Posted by Victoria Belle-Miller in Finances on 01/20/2010
Overview
FHA loans are a great option for individuals who are either purchasing a new home or refinancing their current home. Because these loans are insured by the Federal Housing Administration (FHA), borrower s have access to lower interest rates than may be available to them on other types of home loans and can feel secure knowing their loan terms will never change.
FHA loans have a low down payment requirement (3.5% of the purchase price) and they allow homeowners to finance a large percentage of their home’s value, allowing them to either receive more cash back from a refinance or save money on a down payment for a purchase.
The FHA does not require high credit scores, so it is easier for individuals to qualify for this type of loan than most others.
Competitive Interest Rates, Even for Less-Than-Perfect Credit
Because these loans are insured by the FHA, they are considered by lenders to be a reasonably secure investment. The insurance reimburses lenders for any outstanding balance in the event that the borrower defaults. This makes FHA lenders more likely to offer their customers lower interest rates.
Although mortgage rates constantly fluctuate and depend upon current mortgage market conditions, they are usually low compared with other types of loans. If borrowers choose a fixed rate for their FHA mortgage, that interest rate will never change over the life of the loan.
With a fixed rate, the homeowner will always know what to expect on their monthly payments and will not have to worry about rates or their monthly payment increasing.
Homeowners who have an FHA loan can lower their interest rate any time the market improves with a streamline refinance, which requires less documentation and processing than other refinance transactions.
When borrowers refinance, they can lower both their rate and monthly payment. If rates have decreased since the original loan was taken out, even homeowners with a fixed rate can receive a lower rate with the streamline refinance. Lowering the rate on a home loan frequently results in not just long term savings, but lower monthly payments, as well.
Eligibility Requirements: Credit and Type of Ownership
To be eligible for an FHA home loan, the borrower must be financing the home that is his or her primary residence. The FHA does not require that borrowers have high credit scores, but most lenders want borrowers to have a credit score of at least 620. In addition, there can be no delinquent mortgage payment reported within the 12 months preceding the loan application.
If a potential homeowner has not built up a sufficient credit history, he or she can still qualify for an FHA loan. These applicants will be asked to provide certain types of alternate documentation in order to prove their ability to consistently make payments.
While not every financial product is right for everyone, FHA loans have many benefits that make them the ideal solution to a variety of home financing needs. Homeowners who feel they may be interested in this type of financing should speak with an FHA loan specialist to find out more about their options.
Victoria Belle-Miller is the newest member of the FHAMortgageBank.com writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the FHA loans team and a valuable source of sound mortgage advice.
Smart Two03k Home Buying
Posted by Tony Phillips in Finances on 11/29/2009
Controlling the controllable
The circumstances which can lead to mortgage payment default are many; Some within a homeowner’s ability to control and others are not. In cases where events are beyond a homeowner’s control, mortgage holders have been known to offer assistance by providing a grace period or a temporary reduction in payment until circumstances improve, and some semblance of normalcy is restored to a point where the home owner can resume regular payments.
Events which qualify for this type of lender assistance may be illness, death in the family, divorce, and in some cases, unemployment. In rare cases, such as a recession or governmental order, mortgage holders have provided similar assistance to their mortgage customers. However, when a default occurs which could have been prevented, there is little help or sympathy from the lender – or anyone else for that matter – because the proper steps to such prevention were not taken by the home owner.
At the moment when the decision is made to purchase a home, several questions may enter the thoughts of the decision maker(s), and conversation topics probably range from affordability to property type and neighborhood. Generally, prospective home buyers are able to determine how much they can afford to pay for monthly housing expenses, so the affordability factor is usually not an issue; and invariably they would have already decided on what type of home is suitable enough to meet their family’s needs, as well as where that home should be located.
Once an offer is accepted, home buyers will sometimes insist on a professional engineers report, or in the very least, a professional property inspector’s report so that they will have a complete understanding of the property’s physical condition.
Obtaining one of these reports (more home buyers opt for the inspection report based on cost, but the professional engineer prepares a more comprehensive report which is justifiably more expensive) apprise a home buyer of any physical defects in the home and – based on my experience in the real estate and mortgage fields – that’s the extent to which many buyers have been prepared go with regard to completing any needed repairs recommended in the property inspection report.
Most homes are sold in “as is” condition subject to normal wear and tear, so most home sellers would usually refuse to complete such repairs. I must point out here that repairs recommended by a professional engineer or home inspector may not be the same as any repair work or improvements required by a HUD appraiser.
Barring a discovery of glaring defects in the property condition, many transactions proceeded to closing with those recommended repairs undone because most of the buyer’s savings went toward down payment and closing costs necessary to complete the purchase. Today’s buyers have an option.
It is at this juncture in the transaction (between the accepted offer and contract signing) when every home buyer should make a decision to grasp control of a circumstance which have caused many a home owner to unwittingly default on mortgage payments.
Unexpected repair of major working components in a home – heating/air conditioning systems, plumbing and electrical components, among others – have been known to create havoc with a family’s budget, and as a result, have lead to delinquency in mortgage payments. This is the kind of controllable circumstance to which I referred earlier.
Home buyers can control the occurrence of unexpected repairs to the home they are purchasing by utilizing a special government program which is available to them at the time of purchase. I said special because it provides the home buyer with a uniquely affordable method to eliminate potential budget shattering, unexpected major repairs far in advance of when such repairs are likely to occur.
The HUD Section 203k rehabilitation loan helps home buyers accomplish this forward-thinking, smart method of home buying. This loan program provides financing for needed home repair/rehabilitation in amounts ranging from five thousand dollars ($5,000) up to the maximum of 96.5% of the combined home price and repair costs (Total Acquisition Cost).
Repair costs are incorporated into the purchase money mortgage based on required general contractor estimates and HUD consultant work write-ups which are also a HUD requirement. The loan closes, at which time that amount is placed in an escrow account; home sellers receive their net sale proceeds; home buyers receive title to their new home; and repair work begins within thirty days of closing.
The buyer is now assured that all repair work outlined in the HUD consultant’s work write-up will be completed in a workman-like manner, is being paid for without the prospect of huge chunks taken from the housing expense budget, and the threat of an unpleasant circumstance which could otherwise create mortgage payment default has been eliminated. It is a controllable which could be controlled by forward-thinking home buyers who utilize the 203k program to finance their purchases.
Hi, I’m Tony TPJaveton Phillips I write about HUD/FHA mortgage programs. These mortgages finance owner-occupied primary residences. The 203k mortgage loan provides financing for some mixed-used properties as well. The 203k loan can provide an extra layer of protection after closing. Visit my website at Borrower-friendly Loans and my Prime Mortgages blog for more HUD/FHA mortgage information.
What is an FHA Loan and is it Right For You?
Posted by Adrienne Rockwell in Real Estate on 11/13/2009
If you’re trying to purchase a home, you’ve probably heard about the FHA loan, but you may not be sure what this loan is and how it works. Well, this is a federal assistance mortgage loan that is offered within the U.S. and the Federal Housing Administration(FHA) is the one that insures the loan. Only lenders that are federally qualified can issue this type of a home mortgage loan.
Throughout history, this FHA loan has been used to help Americans that have lower incomes borrow the money needed to purchase a home that they couldn’t afford without it. The program actually came out of the Great Depression when foreclosure rates were on the rise, and it was designed to provide insurance to lenders. Some of the programs from the FHA were supported by the government, but the original plan was to make the programs self supporting by using the insurance premiums that borrowers had to pay.
The initial reason that the FHA was even established was to help reduce the amount of unemployment, help increase the construction of homes, and also help take care of loan insurance programs. The actual Federal Housing Administration doesn’t actually make the loans, but people can apply for these types of loans, and when doing so, the FHA will investigate the person applying and will insure that lender against any loss in case the person borrowing cannot pay their mortgage.
There are two main benefits that borrowers can enjoy when going with a FHA loan. One benefit is that a FHA inspector will carefully appraise the home that they are looking at. These loans are very strict and the homes purchased with these loans have to come up to certain standards before they will be approved. Another benefit is that borrowers will get a lower interest rate on their mortgage because of the protection that is offered on the loan by the FHA.
Interested in taking out a FHA loan? If so, you don’t start out by going through the government. What you need to do first is to contact various lenders and ask if they offer FHA loans. Since very lender is different, it’s important that you compare lenders to get the best terms and rates on the loan. With an FHA loan, those who may not otherwise be able to get a mortgage are able to. Those who are purchasing a home for the first time are able to put down 3% in some cases, and they can receive all the way up to 6% on the closing costs of the home. If they don’t have enough credit, FHA loans will allow the blood relatives to co-sign for the mortgage even if they don’t reside in the same home.
If you are going to get a FHA loan, there is certain documentation that you will need to present. You’ll need to give a history of employment for the past two years, and if you just got out of college, your last two years of college can be used for that purpose in some cases. Your credit score will be pulled, and if you don’t have a credit history, rental history and cell phone or cable bills can be used to show good credit. Other things needed include your social security card and ID. Although not everyone will qualify, these loans are a great idea to consider, especially if you are purchasing a home for the very first time.
To find homes in Boulder Colorado or Longmont Colorado, be sure to visit Automated Homefinder for one of the easiest home searching experiences you’ll ever have.
The Home Loan Debate: Is FHA Right For You?
Posted by Joel McDonald in Real Estate on 11/05/2009
Mortgage Loans From the Federal Housing Administration (FHA)
Unless you won the lottery, or have a trust, odds are – you’ll need a mortgage when you buy your next propery, but how do you find the best option? FHA loans are one of the more commonly available options.. FHA stands for Federal Housing Administration, and they provide a very reliable home loan program. Be sure to keep FHA in mind as it can provide an excellent program if you don’t already have an FHA home loan.
So how does an FHA loan work? The FHA itself does not actually write the home loans. If you want to obtain an FHA mortgage, you will still be working with a traditional loan originator. You can get them from banks or mortgage loan companies.
FHA insures the home loan in the event of borrower failure to pay – which means that if the bank forecloses, FHA steps in and covers the mortgage. . FHA loans have Private Mortgage loan Insurance built into the mortgage loan – meaning if you have less than 20% equity in the residence, you have to pay for that insurance.. This insurance protects the mortgage broker from losing more than what is owed against the house in the event of foreclosure. Be careful – the leading drawback to an FHA mortgage is that the PMI insurance is obligated, and built into the mortgage loan – resulting in slightly higher payments.. When banks do not make you buy private mortgage loan insurance, they are taking on all of the risk of default.
With an FHA home loan, the FHA is taking on all of the risk. If you default on the loan, the FHA will pay the bank the amount remaining on the mortgage loan. This takes the burden off of the banks and puts it elsewhere. Therefore, the banks are now willing to make more home loans to people that they would not normally mortgage loan to. Therefore, you might be able to qualify for an FHA mortgage loan even if you have failed to meet the requirements for other programs.
One big bonus about the FHA program is that you are only obligated to put as little as 3% down. Because such a low down payment is obligated, the FHA program allows for a lot more buyers to buy a residence than would otherwise be able to do. Most traditional mortgages require a lot more as a down payment – reducing the number of buyers who can buy a house. These days, that can be quite a problem.
FHA home loans are also offered with no prepayment penalty. Some mortgages are sticking it to buyers when they try to pay off the mortgage loan early. If you sell or refinance your mortgage loan, you won’t have to worry about that with an FHA home loan.
If you’re considering a mortgage, be sure to ask your mortgage broker about FHA home loans.
This article was provided by Jessica Horn, a writer for Automated Homefinder. Automated Homefinder, LLC has the leading selection of Boulder real estate in the state of Colorado!
Recognizing the Need For 203(k) Rehabilitation Financing
Posted by Tony Phillips in Finances on 11/02/2009
What is it about the HUD Section 203(k) Rehabilitation Loan program, commonly 203k, that causes home purchasers to shy away from this program as a practical and cost-effective method of financing their purchases? I have had many conversations on the subject of 203k mortgages and, in at least twenty percent of the time, people I’ve spoken with didn’t “want to be bothered” with the 203k loan.
Could it be that they were unaware of the program? Or not as familiar with it as they would’ve liked to be? Could it be that they were dissuaded by others out of fear that it may be too complex and could cause unnecessary delays? Some real estate brokers believed that delays lead to the loss of income, which is a well-founded belief, but knowledge of the program could easily dispel that notion. Whatever the reason for this reluctance to finance home purchases with the 203k, let’s take a closer look at the program in an attempt to allay some of those fears.
First, let’s discuss what the program is and what it is designed to do. To do this we’ll have to briefly outline what is entailed in a regular 203b or conventional mortgage. Normally, the mortgage application process consists of four basic stages: Loan Origination, Loan Processing, Loan Underwriting, and Loan Closing. During this process borrowers are asked to meet specific, documented requirements relating to income, assets and credit. This information is combined with property data, such as the property type, value, and title in order to complete a loan package that can be approved.
The 203k mortgage program entails the procedures above with one addition. The borrower is asked to provide to the lender, a work estimate prepared by a licensed and insured contractor which must meet HUD’s minimum repair cost requirement of $5,000 for the work to be completed on the property. Repairs are identified by the borrower and documented work write-up format prepared by a HUD-approved 203k consultant. Completion of a 203k work write-up by a HUD-approved 203k consultant is required by HUD/FHA and is necessary to keep repair costs in line with HUD’s fair market prices.
The question therefore, is how much time is added to the processing of a 203k mortgage application because of the repair cost stage being incorporated into the process? How much more complex will the process become? Will more home buyers elect to use the program for their home purchases if they were more familiar with the process? Will they allow themselves to be dissuaded if they learn about how the program can be beneficial to them in the short term as well as the long term? Let’s look at what the program accomplishes.
There is a full list of repairs outlined on the HUD website www.hud.gov so I won’t go into the repair specifics here, but I can point out that the $5,000 minimum repair cost required for a property to qualify for a 203k rehabilitation loan can be used to seal air infiltration areas in the home and prevent loss of heat during the winter and cool air during the summer. In either case those types of repairs can make a significant difference in the dollars coming out of a homeowner’s pockets to pay for energy costs. What if the property is in need of new plumbing, or electricity upgrade? The 203k pays for those repairs also. Most repairs that a property may need are financed in the 203k mortgage.
The most important benefit home buyers can derive from using the 203k program to finance their home purchases? Not having to pay for expensive repairs in one lump sum, out of their own pockets, during the first year of home ownership; and if they are able to finance the repair of major working components during the purchase, perhaps they wouldn’t need to worry about any repair expense for years after closing.
So, if you are in search of a home and you’re considering different financing options, you could save this article to be used as a reminder that, there is a lot to be gained and very little to lose by choosing the 203k mortgage to finance your home purchase. A little additional time taken to get the job done right, which in turn is to your benefit, can hardly be considered losing anything.
Hi, I’m Tony TPJaveton Phillips. This article relates to a subject that I have enjoyed being associated with for over fifteen years. I can think of no better time for home buyers to utilize it than today, in this market. My knowledge of HUD/FHA, 203b, 203k, and HECM mortgage programs is based on present activity in mortgage lending and a background in real estate. Visit my blog and my website