FHA loans make repairs on fixer uppers possible.
The United States Department of Housing and Urban Development (HUD) sells homes at below market value which were acquired as the result of owner foreclosures on FHA-insured mortgages. HUD home buyers are expected to be financially solvent and ready for purchase with either cash or an approved loan. Likewise, HUD expects home buyers to be able to afford home repairs and does not give grants for repairs or renovations. HUD home buyers may, however, apply for an FHA-203(k) rehabilitation loan. This loan consolidates borrowed money for home purchase and repair into one mortgage. Does this Spark an idea?
Instructions
1. Contact an FHA-approved lender or 203(k) mortgage consultant. Explain to the consultant that you would like to secure rehabilitation funding in addition to the purchase loan to replace or repair the roof on your HUD home. The lender/consultant will have the knowledge to begin the necessary steps.
2. Allow the consultant to conduct a feasibility study. Similar to a house appraisal, during a feasibility study consultants evaluate properties for repair and write estimates of repair costs. The written estimates will then be explained and presented for your approval.
3. Authorize the lender/consultant to create a work write-up. A work write-up is a repair expense itemization which can financed into the loan. Once an agreed-upon loan amount is reached, an actual appraisal will be ordered based on the write-up. Appraisals are ordered to establish an "after improvements" value on the property.
4. Allow the lender to submit the loan to FHA for underwriting. While the loan is being approved, home builders compete to complete the work on your home. When the loan is finally approved, a payment is made toward the property's purchase price while the remaining funds remain in escrow until the roof repair or replacement is completed. Builders may be paid during the rehabilitation process as work is completed or get paid all at once when all of the work is done. All repairs must be completed within six months of the purchase date.
Tags: home buyers, feasibility study, lender consultant, work write-up, your home
