FHA 203(k) Financing Simplified

Are you thinking about acquiring a bank owned home or just any old fixer upper to buy, improve and live in? Maybe you've found a house that you love but it's not quite perfect and needs updates. Are you looking into the FHA 203(k) renovation loan? Are you a Realtor looking for the inside scoop on this product? Well, I'm about to slice through the spin, misinformation and banner ads for you. I'm going to provide you the simplified, down to Earth, REAL story on how the FHA 203(k) mortgage loan works. There is so much misinformation, hype and water cooler talk circulating! It is so important to get properly informed on this program. How does the FHA buy & improve mortgage loan work? Will I qualify? What types of improvements are covered? How long does a rehab loan like this take to close? Can I do the work myself? What will the interest rate and terms be?

 The FHA 203(k) mortgage is not new, despite the claims of many. It has been around since 1978. In the words of HUD, "The Section 203(k) program is the Department's primary program for the rehabilitation and repair of single family properties. As such, it is an important tool for community and neighborhood revitalization and for expanding home ownership opportunities. Since these are the primary goals of HUD, the Department believes that Section 203(k) is an important program and we intend to continue to strongly support the program and the lenders that participate in it."...

How does it work? Well, the FHA 203(k) improvement loan can be used by an approved buyer of an owner occupied home or an existing owner of an owner occupied home. For the sake of simplicity, let's focus this article on the buyer. In short, what happens is the approved buyer can obtain a low, fixed rate or adjustable rate FHA mortgage that covers the purchase price of the home and the needed funds to improve the home in almost any way imaginable, all in one mortgage loan, with one closing and one monthly payment. At closing, the seller gets paid the agreed asking price for the property in its current state and the buyer's pre-calculated repair or improvement funds are held by the bank for disbursement to the buyer's chosen contractors to be paid from as work progresses. Despite ads or claims elsewhere, "do it yourself" work is not permitted any longer. So, the buyer must collect bids and estimates from contractors during the analysis/review stage.

Among the many benefits of this program is that it uses the after improved value of the subject property to calculate the loan amount. This means that the lender appraises the home in its proposed completed state, using the contractor bids to do so. Remember; almost all types of improvements are covered, with the exception of luxury items such as pools and exterior hot tubs. A buyer may use the program to fix any known hazards or flaws to the home such as a cracked foundation as well as to customize, upgrade or improve the home to their taste or liking such as flooring, paint, windows, siding, even brand new, free standing appliances. All work to be done gets totaled up during the analysis stage and submitted to the lender via contractor bids. It is key to remember, however, that major, structural work and/or work exceeding $35,000.00 requires a bit of a different process. In this case, once the contractor bids are collected they are given to a HUD 203(k) inspector who will visit the property with estimates/bids in hand and translate them into a master summary with his or her signature. Any necessary work being missed will be pinpointed by the inspector at this time. The inspector will also draft up a draw/disbursement schedule for the contractors to be paid from as work progresses. As with any type of home improvement loan the 1st disbursement does not occur until phase one of the work is complete so the buyer will of course need a cash deposit to pay contractors to start the job. Minor to moderate work and/or work not exceeding $35,000 will be classified as a "streamline" 203(k) which requires no inspector, no draw schedule and workers can get paid start up money right at closing.

Another great benefit of the FHA 203(k) program is the instant equity it can yield the buyer when properly structured. When done right, a buyer can obtain a home at below market value, add the right type of improvements and upon completion, yield literally tens of thousands if not more in instant equity. It is crucial to use a savvy, experienced Realtor with a keen eye for value and also to get quality estimates from professional contractors. Additionally, it is absolutely paramount that the buyer use an experienced, qualified source for 203(k) financing. Using a newbie is

sure to invite complications, set backs and failure. There is a lot to know about this wonderful program; this here is the condensed "nutshell" explanation. If you have a scenario that you would like to share with me or if you have questions, and you probably will, please feel free to run it by my team and I. We will visit the property within 48 hours and help with answering any questions you may have. Comment here, send me an email or call me! Or, join us at our ongoing workshop, "Fixer Upper Friday" every other Friday in our spacious conference room at our Hudson, NH office.

As always, I'm here to help!

Jamie Woods
Community Banker

Home Savings of America
Member FDIC/Equal Housing Lender
225 Derry Rd  Hudson, NH  03051
http://www.newenglandloans.com
(603)-339-4461

  

Tips For Rapid Credit Restoration From a Mortgage Specialist

So, taking on credit repair? I've pulled and consulted on over 10,000 credit reports. Let me help:

1. Dispute Simultaneously: If you want rapid results it is crucial to dispute simultaneously. Disputing one or two at a time and awaiting their findings is not the way to go. You may be surprised how many do just this. Dispute everything at once!

2. Closing Active Accounts: Closing accounts with available credit limits on them while leaving others open with balances will instantly drive ones balance to limit ratio up and in doing so, drive their score down and potentially bounce them out of contention for financing a major purchase like a car or a home. 

3. Failure To Use Certified Mail: Without certified mail, one has no way of documenting and proving the chronology of their efforts. One must be able to prove that they took the proper steps to dispute their trade lines.

4. Giving Up: The creditors and the bureaus want us to give up and will try relentlessly to discourage our disputes. They offshore their back end work such as dispute handling. They have set up software and detection systems with the intent to complicate and delay our efforts. One must not give up!

5. Using dispute letter "templates" or frivolous/false disputes: Most of us know that the steps to credit score restoration almost always involve disputing inaccurate trade lines or requesting validation of ones debts. Almost all of the web-based "fix your credit now!" ads or those that we hear on the radio with 800 #'s (as in, call now! Operators are standing by!") use cheap, pre-generated letter templates which almost always get rejected at the gate by a computerized detection system. If a templated letter is detected your challenge is almost certain to get declined. Secondly, one should not challenge knowingly valid debts on one's report. Neither creditors nor the bureaus are required to respond to claims that are deemed frivolous.

6. "Resetting the clock": Making a payment to a collection agency on say an old collection account potentially resets the statute of limitations on the debt. As you may know, the statute of limitations as it applies to debt means the amount of time a creditor legally has to pursue a judgment against a debtor for non-payment of a debt. By no means is this advising that we don't pay our debt; after all, we incurred them. This is just to provide a bit of insight as to when and how to resolve collection accounts. (Check your state's statute of limitations or ask an attorney, the statute differs everywhere).

7. Not Validating: This is paramount! As many know, debts are commodotized, sold and purchased on a sort of "secondary market". Collection agencies buy their debts in bulk. Often these agencies fail to keep proper records and paper trail of the origination of these debts. One should always insist that ones creditor (or creditor's agent) validate the debt via the legally defined method.

8. Complacency: Don't get complacent. One must be constantly assertive, stay super-informed, use urgency and thoroughly articulate the detailed nature of their disputes. Also, if an action is to be taken within a certain time frame or deadline, take that action! 

9. Not Keeping Copies: One should get a file box from Staples or WalMart and an extra set of file dividers with labels. This file box is to be used solely for the task of credit repair. One must always copy and alphabetically file ones dated correspondence to and from from lenders, payment receipts, replies from creditors, the bureaus; everything.

10. Not Hiring a Professional or Hiring the Wrong One: Can one handle their own credit score restoration? Of course. The FTC recognizes and advocates this and they provide resources to help consumers do so. But when a professional is needed, as they often are when one is in a super hurry, such as a deal on a house, it is crucial to use a reliable, effective, complaint-free organization whose primary objective is not only rapid results for their customers but also the customer's long-term credit health as well. Be sure to thoroughly research a credit repair organization and visit the FTC's website on the topic before moving forward! If you would like a referral to an excellent credit repair organization with a track record of nothing but results and accolades from their customers, please visit my long time referral source, A & Z Credit Restoration's site and moderate your speakers volume before loading:

http://www.a-zcreditrestoration.com/

If you would like a same day pre-approval interview for a mortgage loan, to apply and lock in an interst rate, or simply an analysis or some recommendations, please, give me a call or send me a memo!

To apply for a mortgage pre-approval quickly, easily and securely please visit:

https://rwstools.com/fxsecureforms/quickapplication.aspx?siteid=884&lo=jwoods@hsoa.com&email=jwoods@myhsoa.com

For more on 100% financing for approved owner occupant buyers and the requirements please see:

http://abrightsunshineyday.blogspot.com/2011/06/sensible-30-year-fixed-no-money-down.html

For the FTC's website on consumer credit repair please see:

http://www.ftc.gov/bcp/menus/consumer/credit.shtm

As always, I'm here to help!

Jamie Woods
Community Banker
Home Savings of America
Member FDIC/Equal Housing Lender
225 Derry Rd  Hudson, NH  03051
http://www.newenglandloans.com

(603)-339-4461

* This is not legal advice. If you are in need of legal analysis, please contact an attorney.