Finance Repairs for Foreclosures
Purchasing foreclosures also means discounts, but with the markdown is the price of repairs. According to RealtyTrac, foreclosures or REOs sold at an average discount of 27 % compared to non-distressed properties in the first quarter of 2012. Through an FHA 203(k) loan, potential buyers who want to purchase a discounted foreclosure but donâ€™t have cash for the repairs may find a way to receive financing.
According to HUD, the 203(k) program is the departmentâ€™s main program for rehabilitating and repairing single family properties, and itâ€™s viewed as an important tool to revitalize neighborhoods.
In order to be eligible, the property must be purchased as a primary residence or it can be for a HUD approved nonprofit. Also, the property must be a one-to four-family residence that has been completed for at least one year.
The maximum amount that can be taken out for the property is based on the value or the purchase price of the property before rehabilitation (whichever is less), plus the estimated cost of rehabilitation or 110 % of the property after improvements, according to HUD.
A down payment is required, and the minimal amount for a down payment is 3.5 % of the accepted bid price plus the cost of financing repairs.
Since there is more â€œfileâ€ to underwrite for an FHA 203(k) loan, Green said the approval process takes longer than a standard FHA mortgage.
â€œFHA 203k approvals take more time, but are no more difficult than any other mortgage type,â€ said Green. â€œBorrowers should expect to provide the documentation required, and should respond to loan officer requests in a timely manner.â€