If you need a home loan to buy a "fixer-upper" and remodel it, look at the U.S. Department of Housing and Urban Development's Section 203(K) loan program. The 203(k) Rehabilitation Mortgage Program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are eligible with limitations.
A 203(K) loan is usually done as a combination loan to purchase a "fixer-upper" property "as is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan. It should be added that since October, 1996, the Department placed a moratorium on investor participation in the 203(k) Rehabilitation Mortgage Program. Investors no longer may participate - only owner- occupants.
Owner-occupants are required to come up with only 3 to 5 percent. HUD requires that a minimum of $5,000 be spent on improvements. Two appraisals are required. Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.
This standard version of the 203(k) will normally take 60 to 90 days to process and under some circumstances as long as 6 months. FHA's Streamlined 203(k) program can be processed in as little as 30 days. The repairs allowed by the the Streamlined 203(k) program are more limited in scope but permit homebuyers to finance up to an additional $35,000 into their mortgage to improve or upgrade their home before move-in. With this new product, homebuyers can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or FHA appraiser.
Any FHA-approved lender may originate a Standard or Streamlined 203(k) mortgage. For a list of participating lenders, call HUD at (202) 708-2720.
If you are a veteran, loans from the U.S. Department of Veterans Affairs also can be used to buy a home, build a home, improve a home or to refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily available with other kinds of loans. To qualify for a loan, the first step is to apply for a Certificate of Eligibility.
Another program is the Fedeal Housing Administration's Title 1 FHA loan program. Title 1 loans on single family homes may be used for alterations, repairs and for site improvements. Loans on multifamily structures may be used only for building alteration and repairs. Title I can be used in connection with a 203k Rehabilitation Mortgage. For additional information on that program, call (800) 767-7468 and request item number 2571.