A rehab loan gaining momentum

We all know there are numerous bank-owned properties available to buy.  We also know that foreclosed homes can be in need of repairs.  What options do borrowers have to buy a home in need of repairs?

Of course the borrower can always pay for the repairs out of pocket, but not everyone has that kind of cash just lying around.  Once upon a time, it was easier to obtain a rehab loan, but those loans are riskier.  In this market, anything “risky” is hard to get and fewer banks offer these loans.

However, there is a loan program that borrowers can use to purchase AND repair/remodel a home.  This program is more readily available because it is backed by the Federal Government. What is it? — an FHA 203k Streamline loan.

With this program, borrowers can acquire money to not only purchase the home, but also repair and modernize the home.  Here are some of the program highlights:

– The basics requirements of the loan are the same as a typical FHA loan. Borrowers must have a 620+ credit score (640+ with some lenders), a 3.5% down payment, and their debt to income ratio can’t exceed 31% on the front end.

– Borrowers can add up to $35,000 to the purchase price in order to make improvements to the home (must have 10% contingency reserve)

– Improvements can include anything from new appliances, updating the kitchen, to building a deck, and even landscaping.  They main thing to remember is the improvement/addition must be a permanent part of the home.

– That said, none of the renovations can involve structural changes to the home (can’t knock out walls, add walls, or even repair existing structural damage)

– “Luxury” items are not eligible for this loan program.  Think something extravagant, like a $5,000 custom made iron front door.

– An additional $8,000 can be added to the $35,000 if you choose to couple the 203k Streamline loan with the Energy Efficient Mortgage program (giving you a total of $43,000 for repairs/remodeling).

– Borrowers can add up to 6 months of mortgage payments into the loan amount so long as they are NOT living in the home while repairs occur.

After reading this list, it is easy to see why borrowers would be interested in a loan program like this.  Banks owning foreclosed homes are also warming up to it because they know most of the homes they now own are in need of some repairs.

For more information, you can check out some information from HUD.gov here and here, or feel free to contact me.

In conclusion, if you are looking at homes and find something that needs some TLC and you have enough for a 3.5% down payment (or can get this as a gift from an approved source), this just may be the loan program for you!

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

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