Get the funds to buy and rehab HUD foreclosures. Did you know that the U.S. Department of Housing and Urban Development (HUD) has many foreclosure properties for sale in California and Massachusetts? There certainly is a bunch of great deals out there even in today’s seller’s real estate market. However, many of these homes needs rehab work done. That’s good news for homebuyers who don’t mind fixing up their homes in order to get a better price. Yet, most mortgage programs only cover the purchase of the home and not the rehab.
It can be difficult enough from some homebuyers to come up with the down payment money, let alone the additional cash needed to pay for the renovations. The good news is that there is a Federal Housing Authority (FHA) loan program that was created for this exact situation. The FHA 203(k) mortgage provides homebuyers with the ability to purchase properties with one loan that covers both the purchase of the home and the renovation costs. That being stated, the FHA 203(k) mortgage program is only available for homebuyers who plan to repair a property that will become their primary residence.
That means it is not available for real estate investors. An FHA 203(k) mortgage is also known as an FHA construction loan. So how does the program work? The FHA 203(k) mortgage program was created to encourage low to moderate-income borrowers to purchase properties that are in need of repairs. The program allows a borrower to purchase their home and renovate it under one fixed or adjustable-rate mortgage. In essence the mortgage amount is equal to the purchase price of the property and the costs of renovation including all labor and materials.
The FHA 203(k) program may also cover the cost of temporary housing while the property is under renovation. There are two (2) types of FHA 203(k) loans. The Streamline 203(k) mortgage is perfect to purchase and rehab properties that do not require a significant amount of repair work. For example, this option does not include funds to make structural repairs. However, the streamline program is the best solution for properties that require minor renovations including cosmetic items such as paint, flooring, and fixtures.
In addition, the property must be habitable throughout the entire renovation period. Repairs under the FHA Streamline 203(k) mortgage program are capped at a maximum of $35,000. The Standard 203(k) mortgage is the best solution for properties that do require a significant amount of repair work including structural repairs. Some examples of repair the Standard 203(k) loan covers include electrical work, plumbing, flooring, painting, heat and air conditioning systems, and bathroom and kitchen remodeling. This type of loan also covers home renovation projects that are based on improving health and safety standards.
