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Short sales and foreclosures are becoming rampant nowadays, so repairs needed for homes are becoming quite an issue.
According to Michael Gentile, applying for a government loan is one way to solve this problem.
There are a few things that you need to consider when buying foreclosed house (REO) or a short sale. Usually, the bank is unwilling to pay for the repairs of the foreclosed home and the short seller is mostly short in cash so that makes them incapable of paying the repairs.
No matter what the situation is, as a buyer you are left with no option but to purchase the house ‘as-is’. If there are repairs that need to be done what most probably would happen is that you have to accept the home despite some structural issues or make the necessary repairs yourself. Suppose the buyer is willing to take care of all the repairs but has budget only for the down payment? And suppose the repairs are to be made before the closing?
Applying for an FHA 203k loan is one option a buyer can take. With the 203k, a buyer can have up to $35,000 budget for the repairs. There are some few reminders to be considered when applying for a 203k loan, but what it’s ultimately giving the buyer is the opportunity to purchase a home that is in need of a little bit of work.
Finance improvements $5,000-$35,000:
• Total of contractor bids
• 10% to 20% for contingency reserve
• Fees for the home inspection
• cost of obtaining a building permit
• Cost for updating of the title
• One closing
• Borrower to occupy during rehabilitation
• Work should begin after after closing
• 1 or 2 family residences
• A complete appraisal of the house which is “subject to” the completion of improvements
• The home must at least be one year old and 100% complete
However, with the 203k loan there is a limit as to the scope of the work that you can perform. You can’t use the money for works intended for the foundation of your home. But most of the other home improvements is okay like minor electrical or plumbing works or on HVAC repairs, cosmetic repairs and appliance upgrades.
Here’s a list of just some of the repairs eligible with a 203k loan as well as those that aren’t:
Allowed Improvements:
Repair or replacement of:
– Downspouts, gutters and roof
– Flooring
– Porches, patios and exterior decks
– Septic/well system
Repair, replacement or upgrade of:
– HVAC systems
– Plumbing system
– Electrical system
• Minor finishing/remodeling of the basement
• Water-proofing of the basement
• Replacement of windows and doors
• Exterior siding
• Interior and exterior painting
• Weatherization
• Appliance upgrades
• Disability access improvements
• Lead-based paint stabilization or abatement
Not Allowed Improvements:
• Major rehabilitation
• Additional constructions (new rooms, bathrooms, etc.)
• Structural damage repairs
• Repairs requiring detailed drawings or exhibits
• Improvements that takes more than six months
• Repair of the foundation
• Repair/construction of pools
• Landscaping or any improvements of site amenities
The 203k loan is a great option for home buyers that want to purchase a home that need some repairs/improvements. When in doubt, call your North Hollywood Realtor for advice.
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