For those of you that are looking for a home and would like to fix it up, but don’t have the money to do it, there is a great new loan that would enable you to do that.  The FHA is offering the 203(k) loan, a great opportunity for the homes that need some TLC.

“Right now, there are plenty of homes on the market in Reno and Sparks, and all of Northern Nevada for that matter, that are extremely great deals but they need a little “love.”  Whether it’s an older house that needs some updating, or a house that’s a victim of foreclosure and the previous owner decided to trash the place before they lost it, fixer uppers are prevalent on today’s MLS.

The problem is that most buyers in our market are first-time homebuyers who are tight on cash.  For many, it’s tough to even come up with the 3.5% down, let alone enough cash to replace windows, buy new appliances or fix a leaky roof.Fortunately, for these buyers, the Federal Housing Authority (FHA) offers two loans to help with these exact types of situations.  With the 203(k) loan, buyers can include the costs to rehabilitate, renovate or repair a home into the loan for the purchase of their new home.  So let’s say Joe and Jane Homebuyer find a house that fits most of their needs, in their desired neighborhood for $100,000.  But the house needs all new appliances and flooring, needs to have the bathrooms repaired and it would be nice to add a garage.  Total cost for all the changes and additions is approximately $45,000 (including a 10% to 15% contingency and inspections).  With a 203(k) loan, their loan amount is based on the purchase price of the house plus the renovation costs.  John and Jane would need to come in with a down payment of 3.5% of the purchase price + renovation, so their loan would be for $100,000 + $45,000, for a total of $145,000 acquisition, and down payment of (145,000 * 3.5%) $5,075 (plus FHA’s required mortgage insurance).Qualifying for the loan is like qualifying for any other FHA loan and the buyer would have to show they make the income to cover the payment on the higher loan amount.So in a nutshell, it’s sort of like getting a home equity loan without having the equity in the house yet.  Interest rates on this loan program run about .5% higher than a traditional FHA loan and we offer these loans on a 30 year fixed rate loan.Basically, the only things that can’t be done with a 203(k) loan are those renovations that would be considered “luxury items,” such as swimming pools and BBQ pits.  If you’re going to need less than $35,000, you’d be eligible for the 203(k) Streamline which basically allows for 2 draws from the additional funds and no structural renovations are allowed.  If you need to borrow more than $35,000, you’d be looking at the full 203(k) and sky’s the limit on what you can do with this loan, within the county FHA loan limit.Besides using a 203(k) to buy a house, this loan can also be used to refinance a home you already own and get cash out to do repairs and remodeling.  Since many people have little to no equity in Northern Nevada and the market for lines of credit has all but vanished, this is one of the only ways to get cash to fix up a house you already own.Of course, this is just a very brief description of the 203(k) loan.  Not all mortgage banks offer the 203(k) loan.  Here at Academy Mortgage in Reno, we offer both the Streamline and the full 203(k) and have a team on staff dedicated to doing only these loans to make for a quick and easy experience.  For more information about the loan and how it can work for you, please drop me an email or give me a call.Stephanie Hanna775 762 9114

stephanie.hanna@academymortgage.com”

Thank you Stephanie Hanna for the great information! 

Filed under: LOAN INFORMATION