DATELINE SANTA FE

203K: Financing for Problem Properties

We recently attended a presentation at the Santa Fe Home Builder’s Association that provided good news for the housing market. The topic was the FHA 203K Loan program. Unknown here in Santa Fe, these loans have been around for over a decade but just recently exploded across the nation with 23,000 loans originated last year and a 700% increase in the last 4 ½ years. What makes these loans so exciting? These loans allow borrowers to add the cost of home improvements into a single mortgage package. Roughly one-third of the properties that are on the market today are considered distressed and buyers do not have the extra cash necessary to make improvements after closing. This is where the 203K Loan comes in.

The benefits to this program are numerous. For the buyers, it provides a single government insured loan at competitive interest rates. Currently, that interest rate is a quarter percent higher than FHA rates and allows for the standard FHA down payment which in some cases may be as low as 3.5%. For properties that are older and require work, these loans allow the sellers to market to a greater pool of potential buyers. Typically, an older home that requires a great deal of work will languish on the market until an investor comes along to scoop a deal. A recent study by Realty Trac showed that investors who pay cash are able to purchase a property for 34% less than an owner occupant. With the 203K Loan program, that seller can still obtain a fair market value for the property and allow the buyer to make the necessary repairs and renovations that work best for him.

The program has two tiers. The Streamline 203K is intended for uncomplicated repairs and improvements. The minimum loan amount is $500 up to the maximum HUD limits and may include new carpet, tile, kitchen renovations, roof repairs, and even window replacement. The Standard 203K is designed for more complicated projects and is a minimum $5000. Structural issues and projects that may require more time and permits would fall under this category and older properties may be required to be brought up to current building codes.

So how does this program work? Let’s say a buyer finds a property but it needs work, lots of work. The buyer has a team that includes the Realtor, the mortgage specialist and a contractor. Bids are created for all the work the buyer wishes to have done. A contract is negotiated between buyer and seller that reflect the value in current condition and a contingency will be necessary to allow for 203K Loan approval and additional repairs that may be required by the lender. The appraiser will factor in the value of the finished repairs and that is the basis by which the lender will determine the base loan amount. HUD guidelines have a maximum loan amount of $427,500 for a single-family home.

In Santa Fe there are many older homes on the market that would be perfect candidates for such a loan program. This is another great way to not only offer a buyer and seller more choices in this market but also to improve property values and revitalize older neighborhoods. Creating a good team that works well together and are familiar with these loans is important due to details and strict timelines. The 203K Loan is the perfect product for our local market so if you think this program might work for you, or you simply would like more information please give us a call or e-mail.

February 23, 2012 Posted by Carson & Carson | Realtor 121 | 203K, Financing, Market information, Real Estate, Santa Fe | 1 Comment