Buy a "Fixer-Upper"
with a FHA 203(k) loan

Many homes on the market are "distress properties" and are considered un-financeable due to its condition.  Investors with vision would normally snatch up these homes with cash and fix them up.  With this FHA loan program, you can realize instant equity in many cases.  Here is how it is done:
 

1.     You would purchase the property like normal based on its current condition.  Many homes would require the home to be financed using the 203k loan option or it cannot be financed at all based on the current condition of the home.

2.     A contractors bid would then be required to indicate what items will be repaired and to what extent including the type of finished materials.

3.     A 203k loan must include a 10% contingency fund and all re-inspection and 203k fees not to exceed $35,000.  Therefore the maximum contractor bid on a Streamline 203(k) loan cannot exceed $30,980.

4.     The 203k Streamline is designed to be for cosmetic improvements only and cannot include any STRUCTURAL improvements that would require a Building Permit.

5.     The contractor would also need to provide his license, bond, insurance and 3 references.

6.     The bid would then be given to the appraiser to determine what the house would be worth "as improved value" subject to the completion of the repairs and finished materials used.

7.     When the appraisal is completed, if the purchase price plus the cost of construction exceed the improved value of the home, the buyer can back out of the contract with full refund of Earnest money or re-negotiate the purchase price.

8.     Within 2 weeks of closing the transaction, the contractor will receive 50% of the funds held for construction.  The balance of the funds will be hels by the Title Company and distributed to the contractor upon completion.

9.     The contractor has up to 6 months to complete the work.  There are no other mid construction draws available on a 203k Streamline.

10.    Upon completion, the contractor will submit their final invoice to the buyer for their approval, who will then call to initiate the inspection.

11.    The same appraiser will come back to the house to verify that the project has been completed as described in the inital bid - or better.  He does nothing to re-determine value.

12.    Based on the final invoice, the contractor will receive the balance due.

13.    Any remaining funds held by the title company will be sent back to the lender as "Principal Reduction" on the loan.  The buyer is not allowed to receive any of these funds as cash.  This also would benefit the buyer as paying down the principal will help eliminate the monthly mortgage insurance payment much quicker.

If you have any other questions about this program, please don't hesitate to call:

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