By JOSHUA BEACH
In light of our economy’s recent record-low mortgage rates, the desire to ditch the renting lifestyle and become a homeowner in D.C. or surrounding areas makes more sense now than ever. But even with that attractive financing, it can still be difficult to pinpoint your dream home without exceeding your budget. Yet with a bit of help from the right type of loan, your ability to make your dream of homeownership come true is a lot easier than you might think.
Our homes tend to be a reflection of ourselves, so when faced with the choice between renting a place with all your “must haves” and buying a place that’s below par, many stick with renting. What if you could purchase a house that has all of your “must haves” and not break your budget? Well, you can.
The Federal Housing Administration (FHA), which is part of the Department of Urban Development (HUD), offers a “Section 203k” loan intended to provide financing for both the purchase and renovation of eligible properties. The 203k program is essentially a decorator-allowance loan that gives you the ability to make the renovations that you want, without having to pay out-of-pocket. These renovations include things as small as replacing carpets and painting, up to knocking down walls and more extensive projects.
So why not just find a house that needs some work, and finance your purchase with a 203k loan to cover the costs of the improvements you’d like to make? There are multiple benefits to taking advantage of “fixer-upper” properties. One of the best is that with a 203k loan, you won’t have to do the renovations yourself. You can decide which improvements to make, and then select the contractor of your choice. The renovations/improvements must be started within 30 days of closing, and completed by six months following the closing date. You have the option to live in the home during the renovations; however, if the house is not habitable during the remodeling, you can also finance up to six months of advance mortgage payments so that you can afford the rent or mortgage of the home you currently live in until renovations are complete.
Benefits of the 203k loan also include:
- Receive funds to purchase and upgrade your dream home all in one loan.
- The loan amount is based on the home value including renovations.
- You can begin building equity in your home almost immediately.
- Home renovation takes place with little or no additional out-of-pocket expense.
- Down payment as low as 3.5 percent.
- The 203k loan may be used to buy property otherwise ineligible for financing.
- Face less competition from other buyers to purchase fixer-uppers, foreclosures or older homes that are outdated.
- Take advantage of better opportunities for “good deals” on home purchases.
- Choose from a larger selection of properties for sale (in any condition), including condos, townhouses, mixed-use, multi-family, single-family dwellings, and those that do not currently meet FHA standards.
When presented properly to the seller, 203k offers may be advantageous in a competing offer situation because the seller does not have to fix up or repair the property. Instead, the buyer is allowed to finance improvements of his or her own style and design as part of the 203k mortgage, and improvements are completed after closing.
The FHA 203k Renovation Loan Program is a hidden financing gem. Most homebuyers aren’t aware of the loan because the real estate agents and lenders they use don’t know enough about the program to feel comfortable recommending it. Before you overpay for your next home due to the small housing inventory, consider speaking with an FHA 203k Approved Lender about your financing options with the 203k loan. Obtaining your dream home in a competitive market might seem like a daunting task, but with the right lender and creative financing, it doesn’t have to be.
Joshua Beach is a licensed loan originator in D.C., Maryland and Virginia with Homestead Funding Corp. of Fairfax. Reach him at firstname.lastname@example.org.