Monday, August 23, 2010

The FHA 203k Loan - I Like It !

This loan program has been around for a while but has only gotton some recent notoriety. In essence it's a way to buy a fixer and do the re-hab work on it leveraging  your banks money, not your own money.

I just closed one of these and, so far, it's working well. There is the long version of this program, and the 'streamlined' version. We utilized the streamlined one, and it was basically very simple.

Find a property that is in distress and determine what it will cost to bring it up to livable standards. If the property is listed below what you would consider market value due to it's condition, that is a good place to start.

We found a condo in Newhall. The location was perfect, the floorplan was great....the condition? Yikes....needed some help. The listing agent was savvy, he had already found out what it might cost to do repairs on the property. And, that helped us significantly. I checked the comparable sales and based upon what the bids were and what it could sell for if those repairs were done, we made an offer on the property noting that we were utilizing the 203k loan program.

Fortunately the agent that was representing the seller could explain why our offer was better than a conventional offer and my buyers' was accepted.

The condo needed plumbing, flooring, drywall repairs, electrical, appliances, decking re-do and some bathroom repairs too. All were noted, broken down between labor and materials and submitted to the bank that was doing the loan. Now, remember, we were doing the streamlined version. Different banks have different amounts that they consider streamlined. The one we were using would let us do max of about $25,000 in repairs. And, not cosmetic mind you. If the kitchen counters were destroyed, yeah, you could improve upon them. But, the program is really meant to make it habitable, not gorgeous.

An appraiser is the key to success or failure. That person has to be viewing the property, checking the sold comps, and putting a solid value on the repairs to equal, or be better than, what it could sell for once all the re-hab is done. Get it? We sailed through that, well not really, but we earned about 20k in equity even before we had the contractor start the work!

The contractor that you choose would benefit if he was familiar with the FHA203k loan program. Makes it easier for documentation required by the bank. They get paid 1/2 up front, and the rest when the job is complete. But, they are getting paid by the bank, not the buyer, so they need to have another party in the mix. Understanding this up front will help the process.

At any rate, this program should be utilized more. It is tougher on the lender, tougher on the Realtor, tougher on the buyer. But, if you don't have the money, in the bank, to do the repairs, and you do find a property that needs repairs that hasn't been picked up by somebody else....this could be a better option for you. And, there is the full program as well, for big bucks re-hab.....that's waaaay tougher!

I've got two lenders that work the program very well. If you want to chat with them, let me know.

No comments: