Have you ever found that perfect location that you want to live but the house just is not quite right for you? Would the addition of more bedrooms or an expanded kitchen make it that perfect place? Does that perfect location have a home that is not traditionally financeable due to the condition of the home? It’s time to think outside the box.
In today’s market where there has been little new construction over the past four years a lot of the homes that are coming into the market need help. Surprisingly there is a loan program that could make your dreams come true. Created back in 1978 during our last major housing market down turn the Federal Housing Administration (FHA) put a loan guarantee program together called the 203k renovation loan program, this is a sister program to the ever popular 203b loans that comprise the bulk of FHA loans. The loans which are provided through their approved lenders allows for homes to be purchased and renovated all in one loan package.
These loans are intended for owner occupied residences which includes multiplexes up to four units. Also eligible are homes that need to be moved to a new location, condominiums and mixed use properties, all have more detailed qualifications than a single family residence that will need to be met.
With most mortgages borrowers can only purchase a home that meets the requirements and standards of their lender. Rarely can you find a lender that would release funding for a purchase if repairs or renovation are needed. In most cases this meant the repairs would need to be performed before the sale was completed. Any renovation would need to wait until the purchase was completed and required the buyer to find another funding source, such as a second loan, to pursue any renovation. These additional loans are amortized over a shorter period of time, at a much higher interest expense, often crimping the level of renovation.
The 203k program allows a buyer to roll the purchase and the repair/renovation expense into one long term loan at an amazing interest rate and extremely low down payment, currently as low as 3.5%. Now this does come with a few more hoops to jump through than the normal mortgage process. The extra hoops related to this program are working with a HUD certified appraiser to determine the value of the property, both before and after the project is completed, determining the value of the expenses of construction and materials, as well as working with a licensed contractor to name a few.
With the extra hoops in mind have your team assembled before shopping. The major hoop to clear is having a good grip on what the project will cost. It will take some time to put your numbers together and you will need the help of your contractor and possibly an architect. Complimenting this would be to have picked your lender out and have a discussion with them as to the other concerns that you will want to address before embarking on your quest for a the not so perfect property.
So now you have your team assembled and you have found perfect location. It could be that small two bedroom country home with one bathroom and a bad roof on a beautiful parcel of land with larger than life Cascade Mountain views. With this program as long as you leave the original foundation in place you can expand the home to meet your needs. This of course is not without limitations, luxury items and improvements will not be allowed. So that indoor lap pool will have to wait but adding rooms, dry walling, painting, plumbing, electrical, windows, doors, heating systems, decks and roofing are all allowed.
One of the requirements in the 203k program is for the homes to improve their thermal efficiency; a great partner for this would be to tap into the Energy Trust of Oregon. Energy Trust of Oregon can perform energy audits of your home to help develop a plan of attack for your project. The Trust can also provide cash incentives for weatherization, heating/cooling, water heating/treatment, appliances, lighting, energy saver kits and much more. They also can be a valuable resource for green technologies in wind, solar and hydro power. Energy Trust of Oregon is a great example of being able to use a number of public assistance programs in conjunction with the 203k program. Locally Neighborhood Impact is a great resource for researching what other programs may compliment your project.
Time now to calculate your loan amount, in the 203k program the FHA allows the lesser the following scenarios; The as-is value or purchase price of the property before the renovation plus the estimated cost of the renovation or 110 percentage of the after-improved value of the property this is then multiplied by the appropriate loan to value factor. In Deschutes County the current loan limit is $447,000 which leaves plenty of room to renovate most homes provided you match up well with qualifying income to support your needed loan amount.
Being that this is an FHA loan; the list of pluses for this program is long. Starting with no income limits, accommodating today’s market FHA accepts credit scores down to a 620, debt-to-income ratios that can be up to 50%, cosigners are allowed, super low down payment of 3.5%, gift money can be used as down payment assistance allowed for down payment and seller concessions up to 6%. Interest rates will be a bit higher than what you find on other loan products but generally they run close to where the FHA 203b loan program is to about a quarter percent higher.
I think that we have possibly given you enough information to pique your curiosity. There are some other hoops and nuances that we will not cover here today along with one variation of the program, the streamline 203k for smaller renovations. I would be glad to meet with you to discuss the nuances and the streamline program.
So if the hoops have not daunted you and you would like assistance in developing a team I can help. We can start searching active listings for Bend, Oregon for the perfect project while you assemble your team. It will be exciting helping you turn your dreams into reality.
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