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Community Corner

Buying a Fixer-upper Home? How to Finance the Repairs

This spring many home buyers will purchase foreclosures, “fixer-upper homes” or just older homes that need a variety of repairs in the expectations of buying the home at a lower price; only then to struggle with obtaining the money needed to complete any repairs or remodeling.  While there are several possibilities for acquiring the necessary funds to complete any repairs or upgrades, The Federal Housing Administration (FHA) offers one of the more popular and cost effective options with its FHA 203k loan which allows a home buyer to finance the purchase of a home and the cost of any repairs or remodeling, all in one loan.

However in spite of its popularity, the FHA 203k loan is misunderstood and therefore there are many myths surrounding this type of rehab lending.  Some of the highlights of FHA 203k loans include:

·         The purchase price and repairs/remodeling cost are rolled into one loan, requiring a small 3.5% down payment.

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·         It allows the buyer to start the remodeling work immediately.

·         It’s a 30 year fixed rate loan.

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·         The buyer must be purchasing the home as their primary residence.

Although these highlights may seem basic there are several myths surrounding FHA 203k loans and there are 5 particular popular myths.

Myth #1: FHA 203k loans are only for homes needing major repairs.

Actually all homes are eligible for 203k financing except for new homes (defined as homes built within the past 12 months.)  Homes that need minor repairs, upgrades, and remodeling or just homes needing updating, whether minor or major, are all eligible for FHA 203k rehab loans.

Myth #2: FHA 203k loans are too complicated.

FHA 203k loans are essentially the same as any other FHA loan, just with a repair escrow feature as part of the loan amount.  Home buyers qualify for the loan the same as they would for a traditional FHA loan. The requirements and rules for 203ks are much the same as any other FHA loan.

Myth #3: FHA 203k loans are too expensive.

Like any other rehab loan, FHA 203k loans should not be compared with a traditional loan that does not allow for remodeling cost as part of the loan amount.  When comparing FHA 203k loans to other types of rehab funding (construction loans, 2nd trust, home equity loans, or other alternate financing options) FHA’s 203k loan is far less expensive and typically has a lower interest rates than other rehab options.

Myth #4: FHA 203k loans only allow for up to $35,000 in repairs.

While the minimum amount for repairs is $5,000, there is no maximum amount allowed for repairs or remodeling cost.  Instead FHA has local loan limits for all types of FHA financing.  However, some lenders will establish their own maximum amount allowed for repairs; in which case most banks and lenders that do set a limit, tend to set a maximum limit of $35,000.  This however should not be confused with FHA’s rules.  FHA only limits the total loan amount which includes the purchase price and repairs.

Myth #5: FHA 203k loans take too long to be approved.

When working with professionals who are well versed in rehab lending, 203k loans should take no longer than other types of FHA loans. FHA 203k loans that take 60 or 90 days or even longer are unnecessary and avoidable.

FHA 203k loans are an excellent option for home buyers to be able to finance any purchase of a home needing repairs or remodeling.  For more information regarding rehab financing through a FHA 203k loan, call 1st Mariner Bank at 877-733-4411.

If you’re searching for a home to purchase in Howard County or anywhere in Maryland, search all homes listed for sale online at www.marylandproperties4sale.com  .

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