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In the current economy, few of us have the savings or income to finance the purchase of a brand new home. Even second hand homes in prime condition can be out of the reach of the average household. So what can you do if you need a new home or you are a first-time buyers looking to buy yourself a slice of the American dream? A good option for many, especially those not scared to invest some sweat and elbow grease in their home, is investing in a fixer upper and doing or at least supervising the work required to make the home livable again.
Rehab Loans with FHA
If that is your plan, you can get government mortgage assistance from the Federal Housing Administration. The FHA has a specific product for buyers interested in saving money and investing money and hard work in a fixer upper home. If you know where to look (think foreclosures, auctions, repossessions…) you can buy homes that have fallen into disrepair and need some heavy doses of tender loving care at bargain prices. Remember banks, which more often than not end up with dilapidated homes, are not in the real estate industry; they are in the lending business. So, they are often very happy to unload properties in need of renovation.
The loan you may be looking for is the FHA’s 203(k) Fixer Upper Loan. This product is based on the Housing and Urban Development’s, HUD, 203(k) program and allows buyers invest in fixer-uppers with a FHA guaranteed loan. The best things about this loan is that it is especially designed for fixer-uppers and comes with an inbuilt protection for borrowers if the repair work costs more than they expected. And let’s face it, it is next to impossible to estimate accurately how much a fixer-upper will cost to get back into shape until you actually get started.
How Do You Apply?
As usual, the FHA does not provide loans directly to borrowers, but uses lending partners. Approach a selection of lenders and request information on their 203(k) fixer-upper loans. The application process is similar to a normal FHA loan. The lender will go through the regular credit checks and debt-to-income analysis. In addition to the basic paperwork requirements of an FHA mortgage, you will need to provide a detailed list of the repairs the property requires and the estimated cost of those repairs.
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