Kris Wales - Macomb County MI real estate blog & homes for sale search site

The “rehab” mortgage offered by FHA is a wonderful product, but also wrought with confusion for many potential home buyers. One of the areas that confuse buyers is that there are actually 2 different appraisal value amounts that the home must meet in order for the mortgage to be approved.

Below is a basic example of how this rehab mortgage works:

A buyer finds a home listed at $50,000 that needs repairs and/or updates to make it livable for them. The home is priced under the current market values to reflect the repairs needed. (IE Home values in the area are $65,000 to $70,000).

The buyer wishes to purchase the home using a FHA 203K mortgage and borrow above the purchase price to pay for the needed repairs and/or updates. Buyer and their contractor estimate the repairs would come to approximately $20,000.

Buyer makes an offer on the home for $45,000 stating in the purchase agreement that it is contingent upon receiving this FHA 203K loan. The buyer then submits documentation for their mortgage pre-approval AND documentation from their contractor that specifies the repairs that will be done to the home and the cost of labor and materials.

The mortgage lender then orders an appraisal - a 2 part appraisal. The first part appraises the value of the home before repairs. This appraisal must be for at least the $45,000 purchase price that the buyer offered. The 2nd part of the appraisal is then done by the appraiser and it must state the homes value after repairs is $65,000 give/take a 10% variance.

If the home does not meet these 2 appraisal values then the 203K rehab loan will be denied.

The 203K rehab loan is a terrific product, but it is imperative that your buyers agent has a solid knowledge of the market value of the home, both pre-repair and after repair. If the pre-repair purchase price is too high, then the adjusted after repair price will be too high for the appraiser. Ask your buyers agent to analyze the true market value of the home you wish to purchase, and sit down and go over the numbers carefully before writing your offer.

Tom Kotzian, the team leader at Keller Williams Lakeside (my office), has arranged for a representative from Bank of America to come to our office and teach a workshop about Equator. This workshop is free, and space is limited. ALL agents regardless of company affiliation are invited to attend. I urge you to RSVP soon if you would like to attend. Please see information below for details:

Tom Kotzian has scheduled the short sale seminar many real estate professionals have requested with Bank of America. Bank of America is now handling all of Countrywide's REO properties. This is a very beneficial program to your current business practice.

This workshop is a must for anyone doing business with Bank of America or former Countrywide foreclosed properties.

WHEN: Monday, May 10, 2010

WHERE: KW Lakeside (45609 Village Blvd, Shelby Twp.)

TIME: 9:00 am - 12:00 Noon

WHAT: Scott Parker, Chief Liaison
Short Sale Department
Bank of America - New "Equator Program for Short Sales"



Please call Tom Kotzian at 586-532-0500 to reserve your seat, or email Tom at Tom@KWLakeside.com

I knew it wouldn't last forever, but I was kind of shocked to get the information in my email that the HUD incentives for Michigan are ending soon.

As of February 12th of this year (yes, less than 2 weeks away) HUD is putting an end to the wonderful incentives that they've been offering for the since the fall of 2008 in Michigan.

The $100 down FHA program will be gone, as well as the $2500 buyers "gift" on home purchases over $25,000.

Please please PLEASE if you are considering putting a bid on a HUD home and want these incentives your bid has to be accepted by February 12th. Any bids accepted after that date will not be able to use these incentives.

Agents and mortgage brokers: If you have clients who are starting the process to purchase a HUD home and are counting on the $2500 or the $100 FHA down payment you will want to pass this information along to them quickly.

To read the announcement from HUD please visit Mcbreo.

Just as we suspected would happen, FHA has now had some major changes and it is now going to cost you more out-of-pocket money to purchase a home.

New - Sellers concessions are limited to 3% of the purchase price.

New - Upfront mortgage insurance premium is increased to 2.25%.


Here is an example of what the lower sellers concessions to the buyers will look like for you:

If you are purchasing a $50,000 home the seller will only be able to contribute $1500 to help you with closing costs, pre-paid items and/or tax prorations. (This same purchase before the new FHA guidelines would have meant $3000 in help to you.)

Many of you are thinking of using your income tax refunds to help you purchase your first homes this year. Often you think that it will be more than enough money with some extra for furnishings, repairs, etc. That may not be the case anymore. You may need every last dime of that refund for your FHA down payment (3.5% of the purchase price) PLUS money for closing costs and pre-paid items.

When you receive your income tax refund tuck it away in your savings account. Have a conversation with your mortgage lender about how much you will need to bring to the closing table for that new home purchase. Save every penny that you can - you're going to need it.