Looking at fixers, but unsure how to pay for the fixing? You need to know about FHA 203(k) loans. These give buyers additional money to address repairs, and can be a great opportunity for folks looking to get a fixer. It’s a complicated process, but a good lender can walk you through the specifics. I just represented Buyers who financed their purchase with this program. Doing so meant they didn’t have to settle for a house that didn’t suit them.
My clients, Jeff and Keri, had been dissappointed with the sizes of homes in their price range – under $210K. Portland’s entry level market is very active, meaning good inventory and lots of Buyers. The 1st Time Buyer tax credit and low interest rates are performing as desired – helping people acheive home ownership on excellent terms. But for Jeff and Keri, there just wasn’t a property that matched their needs, their biggest priority being enough space for two very active kids and a big dog. Houses that worked on paper were in significant disrepair, usually a deal breaker for FHA loans. So when I encouraged them to look at fixers and explore the 203(k) program they were excited to learn more.
Kara Berglund of HomeStreet Bank walked them through the process. In many ways it is a combination between a loan to buy a house and a loan to remodel a house. You have the same steps requiring that both property and Buyer qualify for the loan amount requested, and you also need to address the repairs and improvements, assigning a dollar value for materials and labor. Jeff is a General Contractor so he was able to collect bids and submit a plan for improvements, but this can be a challenge for people not versed in construction. Getting a good GC to steer the process is often the best way to go, but if the repairs aren’t that extensive, sometimes you can collect bids from the specific trades, and submit them with your plan. In this way it’s similar to addressing repairs as part of the home inspection contingency. Once the lender has the plan for improvements they send an appraiser to verify what the property will be worth after the work is complete. Easy schmeezy, right?
For Jeff and Keri everything was humming right along. The plan they submitted was thorough and within the $35K limit. However, while the appraising guidelines aren’t quite as strict as those for a regular FHA loan (providing the improvement plan addresses the condition issues), they still require a clean Pest and Dry Rot Report, and there can be no structural issues. This is where it got interesting. We had termites, post beetles, and weed trees that had eaten the foundation. Without a clean P&D and foundation repairs, we would be dead in the water.
Luckily for us the Seller was VERY motivated and in the construction business. He jumped in with both feet to get a structural engineer to assess the building and prescribe remedies, and then he performed those repairs. The very able James Mahn at Black’s Pest Services took care of the bugs and we closed only 3 days late. Jeff has started on projects, prioritizing a vegetable and herb garden in the enormous back yard. And the boys christened the house with their first antic game of hide and seek. Keri is taking deep breaths and pinching herself. All are very excited to embark on this adventure!
