If you are looking at buying a home, but don’t know if you can get financed because it requires a little work, then have no fear. The FHA offers a program that could help you purchase the home and rehab the property.
The Federal Housing Administration’s (FHA) 203(k) rehabilitation program is “an important tool for community and neighborhood revitalization and for expanding homeownership opportunities.”
How does it work?
With conventional financing, a lender won’t close on a loan unless the condition of the property, and thus the value, ensure loan security. This means that a property requiring rehabilitation may be out of reach for many buyers. These properties generally require the buyer to find additional financing for the needed construction and repairs. These loans can involve short term loans with high interest rates. And in a housing market where many new homes are out of reach for buyers, rehab ready may be a good financial choice. The FHA’s program should allow more buyers to enter the market, and to help to move a specific segment of inventory.
As an alternative to conventional financing, the FHA is offering a chance for buyers to get just one mortgage loan, at a long-term fixed (or adjustable) rate, to acquire and rehab the property.
To be eligible, a property must be a one- to four-family dwelling that has been completed for at least one year. If a home has been demolished, part of the existing foundation must still be in place.
This program has been in use since 1978. Many borrowers, however, think that only “far gone” properties are eligible.
The house “doesn’t have to be falling apart; it could just be outdated,” said Joseph Latini Sr., the president of Hartford Funding, a lender in Ronkonkoma, N.Y. “It just has to appraise below market value and then at market value with the repairs.”