Found a Home, but it is in Need of Work? There’s an App…err, Program for That!

You have been looking and looking for a new home within your price range, but what you are finding are houses that are best described as  “fixer-upper”, “needs TLC”, “has great bones” and houses that are stuck in the 1970’s (lime green?).  What has been your reaction to these houses?  “No way, too much work!” “We won’t have any money left over to bring it to 2011!”  “How did a family survive with one bathroom, we need at least 2!” Sound familiar? 

Well, did you know that the Federal Housing Administration (FHA) has a program for that? The FHA 203k Program allows for the cost of renovations to be included in your mortgage. By considering this program, many more houses may open up to you as possible choices. 

  

There are a few options in the 203k program. For smaller renovations there is the 203k Streamline. Cosmetic work and minor repairs would usually fall under this program. In order to qualify, the renovations must be between $5,000 & $32,000 and can even include the cost of appliances. This program allows up to 110% loan to value of the improved property. Depending on the work needed, this option can convert into the 203k full renovation option.

The 203k Full Renovation option allows for additions, garages and other structural/foundation work needed, but it does not allow luxury items such as an in-ground pool or a spa. While the streamline program has an upper limit of $32,000 this option covers renovations that total over that mark. A HUD consultant is required for the 203k full renovation.

The final option is the 203k Conventional. This option allows for luxury items to be added to the house, and is only limited by the conforming limits. Those limits are 95% loan to value for the improved property if the owner occupies the unit, and 75% LTV if it is a non-owner occupied unit.

For all of these programs, a validated contractor will be required to provide estimates on the renovations as well as complete the work. Home Depot & Lowe’s are both validated contractors.  

The FHA 203k Program is a great option to help improve a potential home, but the process may be slow so be prepared to be patient.  By working with a REALTOR®, you will be guided throughout the process including finding the right mortgage professional who knows the in and out’s of the FHA 203k Program.