People attempting to buy dilapidated homes often struggle to find financing because lenders will not lend money against properties in need of major repairs. Lenders fear that borrowers may default on loans attached to houses in disrepair and leave the lender having to pay for the renovations before selling it to another buyer. The U.S. Office of Housing and Urban Development partners with some lenders to offer 203(k) rehab loans that enable people to buy dilapidated homes. People can use the loans to buy their primary residence but not rental properties or second homes.
Instructions
1. Go to your local HUD office. If you cannot find a location in your area, go to Hud.gov and search for your nearest office. Ask the HUD representative for a list of local lenders that offer 203(k) rehab loans. The 203(k) loans are backed by the Federal Housing Administration so interest rates and closing costs vary little between lenders.
2. Get pre-approved at a 203(k) FHA approved lender. Provide the lender with two years of tax returns, 60 days of bank statements, your two most recent pay stubs and your personal information. After the lender approves you for the program, take your pre-approval letter and find a home.
3. Make an offer on a dilapidated home. Agree a sales contract that includes a get-out clause if you cannot get financing. Hire a contractor to inspect the home and give you an estimate of cost of the repairs. Take the estimate to your lender for approval. After the lender approves the request, an appraiser inspects the home and prices it based upon its projected post-renovation value. The lender sets a loan maximum based upon the purchase price and the cost of repairs. Most lenders add an additional 20 percent to the loan amount to cover unexpected repair costs.
4. Sign the mortgage documents. The lender pays the seller and places the remaining loan proceeds in a escrow account. The lender authorizes withdrawals from the escrow account to cover the cost of repairs until the project's completion.
Tags: cost repairs, After lender, After lender approves, based upon, dilapidated homes, escrow account, lender approves
