Looking for just the right home to purchase can be challenging. So what happens if you find that perfect home that is a fixer upper? The home has issues like: the roof is bad, windows need replacing, there’s wall damage, floor damage, there are plumbing issues, maybe the HVAC system is shot, etc. Traditional loans will not finance a property that is in need of repair. So now what?
Or what if you find a home that is perfect except you really don’t like the kitchen, or the master bath is horrible, or it needs a total repaint inside and out and the carpet is really ugly, or….well you get the picture.
The Rehab/Remodel Loan can be your solution. This unique Loan combines the sale price of the home plus money to complete the needed repairs or remodel work you want.
Let’s look at an example:
You find a home that costs $125,000, but is in need of a new roof, new carpeting, 3 windows need replacing, new appliances and some plumbing repairs.
You get a contractor estimate that is $14,000. With the Rehab/Remodel Loan, the repair estimate (plus a cost overrun safety net of 10 to 20% of the estimate) is added to the purchase price of the home for a total cost of $140,400 ($125,000 sale price + $14,000 repair estimate + $1400 overrun safety net = $140,400)
Once your Purchase goes to settlement, the money is set aside at the Lenders. On most 203ks, the contractor gets half up front (right at settlement) and the remainder once the project is completed and inspected.
The Standard FHA 203(k)
The Loan is for primary residences only. Referred to as the Full 203K, it is intended for more complicated projects that may involve structural changes such as room additions, exterior grading and landscaping. A Full K is also used if your project requires engineering or architectural drawings and inspections or has a total project cost over $35,000. This 203k product requires a HUD Consultant to be used. The consultant watches over the project, makes sure your contractor bid is reasonable and does the inspections before the contractor receives money.
The Streamlined FHA 203(k)
Also, for primary residences only. The 203(k) Streamlined Loan is simply for projects under $35,000 or projects that do not require structural repair. . This version does not require the use of a consultant, architect, and engineer or as many inspections as the Standard 203(k).
The Fannie Mae HomeStyle
The FNMA HomeStyle is unique because it is available for all occupancy types. So it can be used to buy and rehab/remodel Primary Residences, Vacation Homes and Rental Properties! A HUD consultant is needed for projects over $15,000.
Check out the list of eligible repairs and remodels that you can do with these cool loan products:
Repair/replacement of roofs, gutters, and downspouts
Repair/replacement/upgrade of existing HVAC systems
Repair/replacement/upgrade of plumbing and electrical systems
Repair/replacement of flooring
Minor remodeling, such as kitchens and bathrooms, which does not involve structural repairs
Painting, interior and exterior
Weatherization, including storm windows and doors, insulation, weather stripping, etc.
Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens
Accessibility improvements for persons with disabilities
Lead-based paint stabilization or abatement of lead-based paint hazards
Repair/replace/add exterior decks, patios, porches
Basement finishing and remodeling, which does not involve structural repairs
Basement waterproofing
Window and door replacements and exterior wall re-siding
Septic system and/or well repair or replacement
Landscaping
Structural or Foundation repair
Room Additions
Fixer Upper Solution:
When you find a home to buy that is a Fixer Upper, the Rehab/Remodel Loan is the ONLY solution where financing is involved. And it is the perfect solution! You combine the Sale Price of the home with a repair bid from the Contractor (plus 10 – 20% of the repair bid for cost overruns). The Lender does all the heavy lifting. In most instances, the contractor gets half of the repair bid upfront…then the remainder once the project is completed and inspected.
Great for Remodeling:
Sometimes you can find the perfect home that doesn’t have any repair issues. But that kitchen! It’s so ugly….ugh! Well the Rehab/Remodel Loans allow for remodeling as well. You can completely gut the kitchen and start from scratch….or just put in some new granite countertops…or new flooring…whatever you like. Maybe you want a really awesome master bath. You can do it with these Loans!
Instant Equity:
In many instances, you can buy a Fixer Upper home at a deep, deep discount. Even after adding the cost of repairs to your total cost to buy, it is common for the home to appraise for much more than your total cost. Instant equity!
Low Down Payment:
Remember that the 203k Rehab Loan is insured by FHA. So, just like the normal FHA loan, it only requires a 3.5% down payment. And in most instances, the down payment can be gift money from your family. The HomeStyle has different down payment requirements. They are: 5% down on a primary residence, 10% down on a Vacation Home and 20% down on a Rental Property.
Roll In Closing Costs:
With the 203k Rehab Loan, the Seller of the property can agree to pay your closing costs. You will find that most home sales here in Delaware have the Seller agreeing to paying some or all of the Buyers closing costs. The HomeStyle seller paid closing allowances will vary based on the size down payment you make.
No Pre Payment Penalty:
The 203k Loans or the FNMA HomeStyle Loan can be paid off at any time without fear of penalty. You can refinance these loans at any time, or sell the home at any time without an early pay off penalty.
To find out more about the 203k Rehab or Fannie Mae HomeStyle Loan call to speak with a Home Loan Specialist today
302-674-5540
The FHA 203k Loan has some basic qualifying guidelines you must meet and a Loan Limit Restriction based on your County.
The FNMA HomeStyle Loan has some basic qualifying guidelines you must meet
To learn more about the Rehab/Remodel Loans call and speak with a Home Loan Specialist today 302-674-5540
9 East Loockerman Street, Suite 207, Dover, DE 19901
302-674-5540
larry@delawaremortgagerates.org
DE Licensed Mortgage Broker NMLS# 205695