Are you looking to buy a home in Massachusetts but finding the home prices rising? First time home buyers are finding that they are being priced out of the home buying market and are getting discouraged. But you don’t have to be. Federal Housing Admin (FHA) has a couple of rehab loans that will get you into your new home. This loan program can help you rehab a home in Massachusetts or anywhere in the country since it’s a federal loan program. Of course, the process is longer and a bit more labor intensive for the buyer, but if home ownership is one of your goals, then it’s worth the effort.
The Federal Housing Administration (FHA) offers a unique loan program that allows a consumer to purchase a home in need of repairs/upgrades by incorporating the sales price and any required/desired repairs necessary for it to meet FHA property condition standards into one single loan called a 203K.
There are two types of 203K loans;
Streamline – Allows you to finance up to $35,000 worth of repairs
Full – Rehab amount is only limited by the borrower’s qualifications
As to be expected with any special loan program, both of these are a slightly more costly than traditional financing and most often take additional effort from the borrower(s) and a longer turn time for completion. Generally speaking this loan type can take 60-75 days to close. Note that the full 203K requires an additional inspection by a HUD approved consultant which adds further costs and delays. You must also qualify for the purchase price of the property as well as the repairs that are needed (if home is $200,000 and work is $35,000 you must qualify for a $235,000 mortgage). Not all repairs MUST be done under the loan program. Lenders are just concerned with habitability and lead paint. The program is surprisingly lenient on what repairs must be made so it’s very worth the effort of pursuing.
Choosing YOUR Contractor
With this loan program the contractor doing the repairs to the property plays an integral role, documentation such as bids for repairs, licensure, insurance and other items are required. Provided the contractor is a licensed and insured tradesman and can meet the documentation requirements it is the consumer’s choice as to whom fills that role. It is important to note that the contractor, in most instances, cannot be related to the borrower.
The 203K Appraisal
The appraisal process for this loan type takes into consideration the repairs outlined in your contractors bids and the value assigned will be subject to their completion after closing.
The Payment to Contractor
The funds for the repairs will be released to the contractor typically in two installments, 50% shortly after closing and the final 50% after completion of the repairs have been verified by means of inspection.
In summary, the 203K is great way to secure a property at a bargain price and incorporate repairs, however, like anything, the benefit comes at a cost. The 203K product should be used for acquisition of a property in need of repairs/upgrades with a game plan to refinance to a more traditional loan in the future when you have adequate equity (assuming the rates is still favorable at that time of course).
Curious if this loan is right for you?
As always, our team is ready to assist and help you to determine all of your options, including the FHA 203K loan products. Please feel free to contact us to learn more.
Content submitted by;
Sr. Mortgage Advisor, NMLS #397424
Province Mortgage Associates, Inc., NMLS #2861
Hiring A Contractor – Mass.gov
Check A Contractors License
Mass Housing Rehab
FHA Loan Rules
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