Several federal and federally sponsored programs can help homeowners to repair their properties. HUD's 203(k) program is a mortgage insurance program to assist owners of single-family residences. Escrow holdback provisions allow property owners to obtain funds to make repairs while purchasing homes in need of rehabilitation.
HUD 203(k)
The Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), offers the HUD 203(k) program, designed for the rehabilitation and repair of single-family residences. This is a mortgage insurance program that works in conjunction with FHA-approved lenders. HUD 203(k) loans can be used to purchase the property, and establishes an escrow fund to disperse funds for repair. It works similar to an "all-in-one" construction loan where the loan is originated on the estimated value of renovated property.
Fannie Mae and Freddie Mac
Though Fannie Mae and Freddie Mac are both for-profit companies, they are considered "government sponsored entities" (GSEs) that operate under federal charter. Both of these entities have provisions for loans that allow "escrow holdbacks" enabling homes to be repaired as needed.
Escrow Holdbacks
An escrow holdback is a "creative" technique sometimes used by home buyers who are purchasing a home needing repair through Fannie Mae and Freddie Mac. If the appraisal is done "subject to" repairs needed, an escrow account may be set up for a specific repair. Generally, a contractor would provide a bid for the needed work. The purchase loan would pay for the property and fund an escrow account with the amount of money needed to pay the contractor. This process is is not intended for complete remodelings, but it can be used effectively to purchase and repair a house that would otherwise be unfinanceable.
Federal Housing Administration (FHA)
FHA loans could be considered the government's "sub prime" loan. Borrowers with marginal credit often qualify, and the loans require very small down payments. They allow for seller contributions to fix any problems noted in the appraisal as being required or "subject to" the value noted in the appraisal. FHA loans are commonly used to purchase first homes and older homes that are more likely to need repair.
Tags: Fannie Freddie, considered government, escrow account, Federal Housing, Federal Housing Administration, Housing Administration, insurance program
