How to Buy a Home Using an FHA 203k Streamline Rehab Loan
Purchasing a new home, especially one that requires significant "fixing-up," can be an expensive and difficult process. In an effort to facilitate a more streamlined mortgage process, the U.S. Department of Housing and Urban Development (HUD) created the 203(k) program. Instead of getting multiple loans with high interest rates for the purchase and rehabilitation of the home, the HUD program allows you to get one mortgage to cover the entirety of the project at a reasonable long-term rate.
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Instructions
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Determine if you qualify. The property that is to be purchased must be a one- to four-family dwelling that is at least one year old. So long as some of the existing foundation exists, the property will qualify. The improvements must be limited to non-luxury items, but painting, room additions and other items can qualify. The improvements must comply with cost-effective energy conservation standards and each room must have a smoke detector installed.
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Determine if your project is feasible. In consultation with a real estate expert, determine how much work needs to be done, how much that work would cost and what the market value of the property would be after the work is completed.
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Enter into sales contract for the home. Include in the sales contract with the buyer that you have applied for Section 203(k) financing and make the sale contingent on receiving the HUD funds.
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Contact a HUD Field Office for acceptable mortgage lenders. Pick an appropriate lender from the list and begin mortgage negotiation under the auspices of the 203k. The lender will contact HUD to begin the loan application process. The lender or HUD should also be able to help you find a consultant to review the cost projections for rehabbing the property.
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Conduct the appraisal process. An appraiser and a HUD representative will visit the site to make sure that the work proposed can be accomplished and will improve the value of the house to the degree your application states. The lender then reviews the findings, and based on that he determines the mortgage terms and then enters into a firm commitment if you agree to the terms. HUD reviews the terms and if the mortgage is acceptable, the agency will support the mortgage allowing you to purchase the property.
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Tips & Warnings
After acquiring the home, you are responsible for completing all repairs and modifications you suggested in your original proposal. HUD will send inspectors to the property to review the work after its completion to ensure that all responsibilities are met.
When purchasing any home, consult with a licensed real estate attorney in your state to comply with all state and local requirements.
Every effort has been made to ensure this article's accuracy but it is not intended to be legal advice.
