It has occurred to me that in times of uncertainty people need a clear understanding of all available options so that their decisions are based on substantial information. It is always my preference to provide clarity on any issue I discuss or activities in which I participate whenever possible, thus the following article should serve to provide some answers to prospective purchasers of real estate.
Government Program Could Ease Sub-Prime Mess
Have you ever thought about alternative financing programs which may help to alleviate some of the problems that were created by the Sub-Prime dilemma? Utilizing a seldom-used, specialized government program could be the answer if the application is submitted properly.
The Section 203 (k) Rehabilitation Mortgage Insurance program was introduced by the FHA to enable homebuyers to finance the purchase of a house and the cost of rehabilitation with one mortgage only. For homeowners who have occupied their homes for at least one year and intend to continue occupancy, the program can be used to refinance the existing mortgage plus at least $5,000.00 in repair cost.
There are several other uses for the 203(k) program which will be covered later in this article, but right now the focus is on why it should be sought out and utilized in today's market. Make preparations to take advantage of this unique financing option that is seldom used or very often dismissed as being too complicated, too long-and-drawn-out, or too paper intensive.
The 203(k) program, one of many mortgage loans insured by the FHA (Federal Housing Administration) may be one of the best alternatives available to finance the purchase, refinance or rehabilitation of a home today because the risks associated with this loan are historically lower than those of a Sub-Prime (an unconventional reduced income/asset documentation and in many cases higher credit risk mortgage program) loan and the out-of-pocket costs are several thousand dollars lower than a FNMA (conventional) loan would be.
Start your search now for FHA-Approved lending institutions (this could include many banks, savings and loan associations or mortgage companies) in your area and inquire about their program requirements because different lenders may have slightly different underwriting criteria.
Although the program was originally designed to encourage lenders to make mortgage credit available to borrowers who would not otherwise qualify for conventional loans on affordable terms (such as first-time home buyers and residents of disadvantaged neighborhoods where mortgages may be hard to get due to deteriorated values), present market conditions are indicative of the difficulties that existed in the early 90s when this program gained industry-wide popularity.
Learn about the many ways that the 203(k) program can be used to finance just about any property in today's market, especially with declining home values and the recently increased FHA loan limits. According to the “Eligible Activities” section of HUD's web page http://www.hud.gov/ the extent of the rehabilitation covered by Section 203(k) insurance may range from relatively minor to virtual reconstruction with a minimum repair cost requirement of $5,000.00.
A home that has been demolished or will be demolished for reconstruction is eligible as long as the existing foundation system remains in place.
A residential property that also has non-residential uses (Mixed-use) is eligible as long as the non-residential portion does not exceed 25% of the overall structure; A multi-unit (Small apartment building with 5 or more units) is eligible as long as the building will be converted to a one-to four-unit structure.
Let your Realtor know exactly what kind of home you’re looking for just as you would have done if you were going to utilize a conventional or sub-prime loan program. Be confident that under the Section 203(k) program you have a much wider variety of housing options to choose from.
Here’s why: Providing you agree with the premise that most houses over one year old probably needs at least $5,000.00 worth of repairs pursuant to a contractor’s estimate, then 95% of one – to four – unit properties available for sale should qualify.
This means that if you decide on a specific home in a given area that you want to own, you should be able to aquire that home with Section 203(k) financing.
If however you cannot locate the right one or two unit home in the location of your choice and there is instead a three or four unit structure available, this program gives you the flexibility to go forward with the purchase and convert the three or four unit to a one or two unit and you'll have full supervisory powers over how your new home will be completed.
You control what your living quarters will look like. That’s one of the best features of this program. Any house can be made into your dream home. Literally!
Complete an application for a Section 203(k) loan when you're sufficiently satisfied that you have completed your own research because one of the great features about this program is that - in accordance with information published on the HUD page - “all persons who can make the monthly mortgage payments are eligible to apply” as long as that person intends to occupy the property as a primary residence.
Based upon this information one could conclude that borrowers who qualified for conventional mortgages would also qualify for Section 203(k) mortgage loans without the higher up-front costs, and those who qualified for sub-prime mortgages could simply gather up their earnings documents and apply, because the down-payment (3% minimum), although HUD did not cover this requirement on their page, and the credit issues - which may have been ligitimate reasons to seek sub-prime financing in the past - are quite manageable under this program.
When you consider the following improvements permitted with Section 203(k) financing, you can readily accept the premise that $5,000.00 in repairs should not be difficult to find in order to qualify the house for this program:
Structural alterations and reconstruction, modernization and improvements to the home’s functions elimination of health and safety hazards. Changes that improve appearance and eliminate obsolescence Reconditioning or replacing plumbing; installing a well and/or septic system
Adding or replacing roofing, gutters and downspouts, adding or replacing floors and/or floor treatments, major landscape work and site improvements, enhancing accessibility for a disabled person, making energy conservation improvements,
HUD requires properties financed under this program to meet certain basic energy efficiency and structural standards.Applications must be submitted to the local HUD office through a FHA-approved lender
Repair costs estimates must be submitted by licensed, insured and – in some cases – bonded contractors unless the borrowers elect to complete the repairs by themselves. Special safeguards would be applied where borrower-completed repairs are concerned and HUD-Approved 203(k) Consultants must be engaged in order to complete the work write-up.
More onformation can be obtained at http://www.hud.gov/A HUD handbook, Rehab a Home with HUD’s 203(k), is available at website or by mail from HUD
This article was written by Tony "Javeton" Phillips. Tony is a mortgage professional specializing in commercial loans in the Northeast United States.
Next Post: Find out why the "Built-in" safeguards in the Section 203(k) program will work to prevent the kind of mortgage meltdown which we recently experienced.
Visit this www.c-loans.com for commercial mortgage info or email Tony at: firstname.lastname@example.org or