FHA Loan Allows Fix-Up Costs to be Folded into Mortgage

Seeing the words “as-is” is can conjure up some scary images. The thought of renovation and getting the money to pay for it can be daunting. Did you know that there has been an FHA program in place since 1978 that allows buyers to include renovation costs into their mortgage? It’s the FHA’s 203k program. The Contra Costa Times provides some details on how it works:

Perhaps more of a tear down but you never know – how ambitious are you?

Renovation financing through the 203(k) program allows the costs of needed repairs and improvements to be included in the FHA federally-insured loan amount instead of having the buyer come up with cash or a separate loan to do the work.

FHA home loans require certain health and safety standards be met and that needed repairs identified during the inspection process be completed before escrow closes. However, minor repairs and improvements costing between $5,000 and $15,000 can be done after escrow closes for borrowers who opt for a streamlined repair program.

A 203(k) loan can help buyers finance both minor and major repairs and improvements. It can also help buyers compete with investors when bidding for short sales and foreclosures, said Sheri Powers, director of the Homeownership Center at Unity Council.

The loans can also be used to pay for improvements such as new appliances, second-story additions, remodeled kitchens and bathrooms, and skylights, just to name a few examples.

At a time when equity loans are hard to get, the program can also be used as a refinancing vehicle for borrowers who want to do repairs and improvements, provided the value of the home is greater than the value of the loan.

The program is gaining in popularity but there were still only 219 203k loans issued in the Bay Area in 2009. There are some limitations to the program and, obviously, some government paperwork. But this can be a great vehicle to allow you to get into a home that needs some work or just do some renovation you would like done. With the number of short sales and bank owned properties out there, this program could see more applicants. It helps to have someone on your side that understands the process, so if you think you would like to pursue a 203k loan, give me a call and I can point you in the right direction.