Purchasing foreclosures also means discounts, but with the markdown is the price of repairs. According to RealtyTrac, foreclosures or REOs sold at an average discount of 27 percent compared to non-distressed properties in the first quarter of 2012. Through an FHA203(k) loan, potential buyers who want to purchase a discounted foreclosure but don’t have cash for the repairs may find a way to receive financing.
In order to be eligible, the property must be purchased as a primary residence or it can be for a HUD approved nonprofit. Also, the property must be a one-to four-family residence that has been completed for at least one year.
The maximum amount that can be taken out for the property is based on the value or the purchase price of the property before rehabilitation (whichever is less), plus the estimated cost of rehabilitation or 110 percent of the property after improvements, according to HUD.
A down payment is required, and the minimal amount for a down payment is 3.5 percent of the accepted bid price plus the cost of financing repairs.
“FHA 203k approvals take more time, but are no more difficult than any other mortgage type,” said Green. “Borrowers should expect to provide the documentation required, and should respond to loan officer requests in a timely manner.”
Is a 203K Loan Right for You?
- Buy a “Fixer-upper” or REO property needing renovation
- Get funds to both purchase and upgrade your dream home
- Refinance and renovate your existing home
Advantages of 203K
- Loan amount based on the home value including renovations
- Only one loan needed to both purchase and improve
- Refinance and rehab your own home
- Can be used to buy property otherwise not eligible for financing
- A minimum down payment of 3.5%
- A credit score of 640 or higher
- You currently have no other FHA loans
- You DO NOT have to be a