How can I make use of a 203(k) loan in Prince William County?

WHAT IS A 203(k) LOAN? And how can I use one to make my house a home?

Have you found the "perfect home" but it's a disaster? Can you see the potential beyond the shabby appearance? The purchase of a house that needs repair is often a catch-22 situation, because the bank won't lend the money to buy the house until the repairs are complete, and the repairs can't be done until the house has been purchased.

Introducing HUD's 203(k) program which can help you overcome this obstacle by enabling you to purchase or refinance a property plus the cost of making the repairs and improvements in one mortgage. The FHA-insured 203(k) loan is provided through approved lenders and is available to persons wanting to occupy the home.

The downpayment requirement for an owner-occupant is approximately 3.5% of the purchase and repair costs of the property.

The 203(k) loan includes the following steps:

A potential homebuyer locates a fixer-upper and writes an offer after doing a feasibility analysis of the property with a realtor. 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 203(k) lender 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.

203(k)'s are not for the faint of heart. The process is not quick and requires the potential homeowner to do some homework, lots and lots of homework.

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 (6 months).

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.

VIOLA! Work is done, buyer/homeowner is happy and taking the after pictures to show family and friends!

If you are willing to do some major work to make your house not just a house but your home-sweat equity included, a 203(k) might just be the ticket for you. Call me and we can begin your search, because Your Search Today helps bring you Home Tomorrow!