Buying distressed properties with home improvement loan
A distressed property home falls under two categories, a foreclosure or a “short sale”, by the current borrower. For a buyer, there’s a lot of money to be made buying and reselling a distressed property. Lenders who want to liquidate their repossessed properties and people who need to get out of a toxic home mortgage with a “short sale” both offer homes with heavy discounts. While it may seem like these types of situations are strictly for professional investors, that is not true. Those looking to buy their own home can also find great deals on these properties and perform the repairs themselves. Financing with mortgage loans can aid in this process.
The FHA 203k Option, Is it for me?
When looking to purchase a foreclosed property, it is normal to deal with the lender on a cash offer. These offers on the property are usually evaluated based on similarly priced foreclosures in the area. For those unable to do a cash offer, the Federal Housing Administration (FHA) has a 203k Rehab Loan program. This program is designed for people who intend to live in the home and it allows the borrower to include the cost of renovation in the body of the loan, eliminating the need for a second mortgage. This, in turn, will save you time and money.
The primary reason for a Rehab Loan is for the renovation of foreclosed or distressed homes. Many homes that go into foreclosure, or are available through a short sale, have extensive damage. These homes may have been sitting vacant for some time and might have had their plumbing, cabinetry, or other parts of their home damaged by angry former owners. Because of this damage, these properties need to be renovated and deemed habitable before they can pass inspection.
Advantages of the FHA 203k Rehab Loan Program
- The total loan amount can include the cost of renovations and a reserve amount for unforeseen expenses that may arise.
- The program allows for up to six months of mortgage payments to be made while the home is being renovated.
- There is no limit on what types of renovations can be made as long as they total more than $5,000.
- The current property can be a complete teardown and rebuild as long as the new home is built on the existing home structure.
Purchasing a distressed property can present greater challenges than your typical home purchase through a conventional home loan. Going through the FHA 203k program and getting the home ready to be lived in will take a lot of time, so it is not a quick process. Finding a home in a good neighborhood that falls into this category can be a great way to get a deal on a home and to start out your experience with significant equity in the property.
Thinking of buying a distressed property and need a home improvement loan? Contact a Mortgage Advisor 2yrzFjVD