I recently attended a seminar in which a mortgage lender explained the importance of an FHA 203K in a low-income loan process. Basically, an individual or family that plans to live in a house (or multi-family unit or condo) for one year can receive a low-interest FHA 203K loan for the purpose of renovating the interior of the property so it meets minimum building code requirements. The lender explained that her company will lend up to the full amount of the 203K ($35,000) on a property that appraises well prior to the renovations, and then appraises well following the renovations.
For example, a foreclosed property that needs some interior work is selling for $120,000 from the bank. It was once worth considerably more, and appraises now for >$120,000. The buyer closes on the house and monies are released to begin the renovations (this particular lender releases 50% at closing). A contractor who has bid the work must complete the job, and the balance is released by the lender to pay off the contractor when the job is complete. In some cases, a re-appraisal may be required by the lender, which should not present a problem if the renovations were priced fairly and completed properly.
This loan could help thousands of first-time home buyers with limited income achieve home ownership. It would also help remove distressed properties from the inventory of homes for sale – an inventory that is keeping property values down in many markets. This loan could help neighborhoods where a foreclosed property is viewed as a ‘blight’ on the neighborhood.
Why are we talking about this in an blog about indoor air quality? Many foreclosed properties have been vandalized or have developed moisture damage that may be deterring people from proceeding with the purchase. The 203K could provide the funds to make the necessary repairs to drywall, framing, etc., allowing a buyer to get into a house they might otherwise take off their list.
The 203K is a win-win loan: the bank removes a distressed property, a low-income buyer gets into a decent home, and the neighborhood is improved when a family moves into the house with the foreclosure sign in the front yard.
For more information, check out the 203K on the HUD website at http://tinyurl.com/3wdm4ox