Little-known home loan for fixer-uppers

Updated: Friday, 25 Feb 2011, 9:15 AM EST
Published : Thursday, 24 Feb 2011, 10:47 PM EST

(FOX 25 / MyFoxBoston.com) - Fixer-uppers, bank-owned or not, can be a real deal. But coming up with the cash to make those repairs or improvements can be tough. Sometimes the condition of the home can hold up your financing.

There is a little-known way to purchase a home and give you cash to make repairs or renovations, in one loan. It’s called a 203k Rehab loan . It’s an FHA mortgage that allows you to put as little as 3.5 percent down, and on closing gives you money for needed repairs.

If you’re patient and are willing to do a little extra work, you can roll some of the cost of those big ticket items into your mortgage including replacing a roof, a septic system, heating and plumbing or you can redo a kitchen.

TO QUALIFY:

• Must Be Your Primary Residence; No Investment Properties
• Needed Repairs
• Cosmetic Updates
• New Appliances

HOW MUCH CAN YOU BORROW?:

• There are Maximum Property Values in Each County
• 110% of What the Home Will Be Worth, Once Repairs are Completed

HOMEOWNERS MUST:

• Get a Contractor to Commit to a Fixed Contract Price to Do Work Before Closing
• Complete Work Within Six Months
• Pay Mortgage Insurance

“I think it’s one of the most under-utilized loans. It’s a terrific loan, especially for the first time home buyers because it gives them an opportunity to have money that they may not have saved up, because they were saving, primarily, for the down payment of the home,” says Rob Mitchell of Coastal Finance .

“I don’t think realtors like to tell their buyers about it as well, because it can take up to 46 to 60 days, where a typical purchase we can get done in 15 to 30 days,” Mitchell says.

Many say this loan is a short-term way to get added value in your home. “The value of the property has increased, because they’ve made those improvements, and the overwhelming majority of buyers, then continue on to refinance. Usually, they’re eligible for a conventional product, which means their rates go back down, they can drop their monthly mortgage insurance premiums, and they’ve already got equity in the property,” says Erika Hall of Hall Team Realtors .

APPROVED 203K LOAN ORIGINATORS

Web links:

http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm
http://www.hallteamadvantage.com/
http://coastalfinance.com/
 

If you thought you couldn't buy a "fixer-upper", think again!

Thought this might be helpful information given the winter we are having here in New England!

In a recent Forbes blog post, multimillionaire hedge fund manager John Paulson declared that today’s record-low interest rates made this the best time to buy homes in fifty years. “If you don’t own a home, buy one,” Paulson said. “If you own one home, buy another one, and if you own two homes, buy a third and lend your relatives the money to buy a home.”  Why should we care what Paulson thinks? Well, he was among the few to accurately predict the subprime collapse and, while no one has a crystal ball, a closer look at the numbers supports his call to action.

Historically low interest rates are the key…and they aren’t likely to hang around for long.

As we wrote in SHIFT, buyers who “choose to wait until prices come down more” are gambling that interest rates will hold steady or drop. The truth is even a 10 percent drop in home prices is nullified by a 1 percent increase in interest rates. The figure below illustrates how this works for a $250,000 home purchase and the relative likelihood of each scenario.

To figure out which was a smarter bet–counting on home prices to fall further or interest rates to rise–our research department took the last ten years of monthly home price and mortgage interest rate data and ran the numbers to see which was more likely: an increase in mortgage rates or a further drop in home prices. Here’s what we found:

1. A one percent increase in mortgage rates is ten times more likely to happen than a ten percent drop in home prices.
2. A one percent rate increase more than offsets a ten percent reduction in home prices.
3. When interest rates fall by one percent, the total interest paid is almost three times more than the interest savings from a ten percent drop in home prices.
4. The probability of both happening at the same time is ridiculously small, and homeowners would still pay 15 percent more in interest over the life of the loan.

Interest rates have dominated the news in recent months as we’ve shattered record low after record low. Potential home buyers need to understand the positive financial impact low interest rates have on the cost of home ownership and the thousands of dollars that can be saved over the life of a typical mortgage loan. For those who can afford to buy, trade up, or invest, our current market presents a lifetime opportunity.