Hi,
My daughter and fiancee are looking at a home in foreclosure that needs a new septic field. The home is priced where after investing the $10,000 needed, it should appraise for more than the total investment.
Many of my home inspections are for first time buyers looking for a starter home. Many of the homes are either out-dated, needing the electric, HVAC, plumbing, or roof redone, or they have been neglected and are deteriorating.
Many of my clients don't seem to know about Rehab Loans or 203(k) loans. These seem like the perfect way to address the gluttany of foreclosed homes.
The way I understand this, the client needs to be able to show:
- Credit-Worthiness
- Appraisal Value after Renovations
- Minimum of $5000.00 in repairs
...then it would be the perfect program.
According to guidelines spelled out by the FHA for it's participating approved lenders, a Rehabilitation Purchase and Renovate loan includes the following steps:
- A potential home buyer locates a fixer-upper and executes a sales contract. The contract should state that the buyer is seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the FHA or the lender.
- The homebuyer then selects an FHA-approved lender who offers the Rehabilitation loans and arranges for a detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project.
- The appraisal is performed to determine the value of the property after renovation
- If the borrower passes the lender's credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs and is used to cover any extra work not included in the original proposal.
- At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
- The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.
- Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines their will be no liens on the property.
I know my daughter will have a long road to travel, but it's the only way they could get there "Dream House". But with a lot of research, patients, and paper work, I'm sure they can do it!
Please let me know your opinions on these types of loans, or anything that might help!
Respectfully,
Rick Capps
Bendix Home Inspection, Inc
37315 Bendix
Wayne, Mi. 48184
Cell: 734-377-5616
Fax: 734-578-0440
rick@bendixinspect.com
http://www.bendixinspect.com
|