Editors Note: The following is a guest post by Rick Strickler of Union Mortgage, a division of Union First Market Bankshares, which is the largest community based bank in Virginia. Their banks have been around for over 100 years. Rick has been working in the mortgage loan business, here in Hampton Roads, since 1979, and specializes in renovation and new construction loans. His vast knowledge allows him to smooth out the intimidating mortgage process by providing accurate and complete information regarding renovating and building homes. If you would like to contact Rick, please see his info at the bottom of the post.
The 203 K loan program from FHA is a great way to purchase a property and bring up to your standards. It allows the financing of not only the purchase of your home, but also the costs of improvements and repairs you wish to have done. The beauty of the program is the current market is providing an excellent opportunity to purchase a home in a neighborhood you may have not been able to consider using traditional FHA financing. The reason is you can look at property which needs to have repairs done, but the seller will only accept either cash contracts or contracts using renovation loan financing. These properties are usually bank owned or distress sales being offered only in an as-is condition. This being the case, they are usually listed at a below market price to move them quickly. The combination of aggressive pricing and the built in equity obtained through renovation, results in you having a very attractive equity position at the end of the project.
There are no guarantees, but in most cases you can expect a 20-30% equity position in your home. Using this scenario, your agent can help you find properties available in areas that are valued possibly 20-30% higher than properties that can be financed with standard FHA, VA or conventional financing.
For example, let’s say you have been pre-qualified for a purchase price of $200,000. You have not found a home that meets your needs in this price range. Using the FHA 203K program, your agent is still looking for home that will only require the $200,000 loan you are approved for, but how you breakdown the amount between purchase price and improvement budget makes all the difference. You look at a property selling for $170,000, Bank owned, as-is. You and your building contractor come up with a budget of $25,000 for new windows, upgrade the heating, new carpet, paint and kitchen appliances. The total amount is still under the amount you have been approved for, but rather than a $200,000 home, your new home could appraise for as much as $240,000, possibly more. Now you are in a $240-250,000 neighborhood for the price of a $200,000 neighborhood.
Call me with any questions, concerns or what ifs.
Union Mortgage Group
(757) 351-6300 office
(757) 351-6471 fax