Fixer Upper? Should I Even Look at It?

You’ve been scouring the real estate books and classifieds. You come across a home that seems perfect…until you see the words… FIXER UPPER. Most would skip right over the listing due to those two little words. Did you know you can finance a “fixer upper” to include most repairs? If you’ve toured homes, you know that houses come in all kinds of condition. Some are move-in ready. They will typically be listed at a higher price. Others may need some work. These houses tend to be priced below the market, reflecting the need for repairs and improvements. For buyers who have the skills and willingness to undertake these projects it presents an opportunity to save money. But there can be one significant obstacle.

Can’t pass the an inspection

Mortgage lenders will order an appraisal to inspect the property before giving you a loan. If inspectors find material defects – and something as minor as a broken window qualifies – they will not approve the loan. If the owner agrees to make necessary repairs before settlement, that’s fine. But some can’t, or won’t.

I want the house, but it needs repairs… what now?

Someone who wants to buy a fixer-upper but needs to obtain financing can do so with a non-conventional loan. The FHA offers a loan program specifically for fixer-uppers that will be owner-occupied. These loans tend to be more expensive, but they can be an efficient and affordable way to go for homeowners. The FHA 203k loan is guaranteed by the U.S. government, just like a regular FHA loan. But in addition to financing the purchase price, the loan can also include money to repair and remodel the property.

Regular and Streamlined FHA 203k

Some houses need minor repairs. Some will need complete overhauls to become habitable. For this reason, there are two types of FHA 203k loans; regular and streamlined. Regular 203k loans are for homes that need structural repairs, and streamlined loans are for those that need non-structural repairs. In order to qualify, homeowners must plan to live in the home they are repairing.  For this reason, these loans are not for investors. The total value of the property must still fall within the FHA mortgage limit for the area. The value of the property is determined by either the value of the property before rehabilitation plus the cost of rehabilitation, or 110 percent of the appraised value of the property after rehabilitation, whichever is less. Be sure to verify the details with your lender. The rehab funds can be used to address all the issues that prevent the dwelling from passing an FHA financing inspection. But they can also be used to make cosmetic improvements, such as updating a kitchen or bath.

Get the details before you move forward

This type of loan is much more involved than a conventional mortgage. You will want to use a lender who has experience with FHA 203k loans. Feel free to give us a call to discuss the specifics of this program. We have seen beautiful results come out of this loan for past clients. Keep in mind, the process is a bit longer than a conventional mortgage, but the outcome is well worth it!