Arizona Home Buyer Alert – 203k FHA Loan And What It Means To You

HAS THIS HAPPENENED to you  during your Arizona home search?

You’ve been driving around all day, looking at foreclosure homes with an agent.  Every home you saw either is either missing its appliances, needs some fixing up or is completely outdated and unappealing.

That’s when the agent, who just took you through the 15th home of the day, turns to you and asks – “What’s next?  Do you want to see some more properties or write up an offer on one we saw today?”

The agent, who came recommended by a co-worker,  has been pretty nice.   In fact, all of the homes you saw were at the right price point and the agent only made two U-turns all day.

Despite these positives, you’re left  wondering if the agent has left something out.  Maybe the real estate agent could have made  suggestions on how to buy one of those homes that were almost perfect except for the mising appliances and the trashed carpeting.

Afterall, their location was perfect for you.  In fact, there was that one home you would love to own.

If only there was a way to pay for the needed repairs or renovations.  Without guidance from the real estate agent you shrug your shoulders and head home wondering what you are missing out on.

If you could buy one of those homes without paying out-of-pocket for the construcion or repair costs?  Would you?  If the answer is Absolutely!  Then I have the perfect solution for you.

“It’s called the FHA 203 (k)  Loan Program and it is great for home buyers for many reasons,” said Ruby Mason, a Certified Mortage Planning Specialist with Spectrum Financial Home Mortgage.

According to the FHA Website, the loan can be used in the following way: .

Structural alterations and reconstruction: (Repair or replacement of structural damage, chimney repair, additions to the structure, installation of additional bath(s), skylights, finished attics and/or basements, repair of termite damage and the treatment against termites)

• Elimination of health and safety hazards.

• Changes for aesthetic appeal:
  (New siding, adding a dormer, covered porch, attached garage).

• Air Conditioning or replacement:
  (plumbing, heating, air conditioning and electrical systems).

• Installation of well, septic system or connection to public utilities.

• Major landscape and site improvement.

• Roofing, Gutter Downspouts, Flooring, Tiling and carpeting.

• Improvements to improve accessibility and functions for the disabled.

Here’s how it works.

Find a home that you like in the location you want.   After writing the offer with language informing the seller & the listing agent that this will be a 203 (k) loan transaction, you have your contractor put together a bid for the work, the lender gets an the appraisal that validates the total loan amount represented by the sales price plus the repair costs, then go you to close of escrow.

The 203(k) is like a construction loan and operates in draws.  The first draw pays off the lienholder and purchases your new home.  Subsequent draws are made as the work gets done.

When you move in you have a practically brand new home with the features and design styles that you picked out.

Richard Jefferson, a Senior Mortgage Consultant with OnQ Financial, an Arizona-based lender specializing in 203 (k) transactions warns that there are several important guidelines that need to be adhered to when dealing with a 203 (k) FHA loan.

• Being an FHA loan means the total loan amount must meet FHA guideline.  For Maricopa County that amount is $346,250.
• Repairs cannot include “luxury items” but can include most anything else. Appliances, new cabinets, countertops & bathroom fixtures.
• More significant renovations like a rip & tear project can be considered as long as the FHA and lender guidelines are met.
• The “Streamline” version of the 203 (k) loan is specifically for cosmetic items like paint & carpets.
• Ownership requirements must be met.

Mr. Jefferson’s website, www.richjefferson.com has a plethora of information on 203 (k) loans. Both he and Ms. Mason of Prospect Mortgage recommend relying upon a lender with experience with 203 (k) loan requirements.  Ask your lender if they have written any 203 (k) loans.  If not, give either of these two lenders a call.

Mason Cave,  owner of MAC Homes, an Arizona construction company specializing in performing 203(k) repairs and renovations breaks it down for us this way.

According to Mr. Cave, “This helps you help your client if someone wants a specific school district.  Or,  they want a specific neighborhood. ”

Another mportant point when dealing with a 203 (k) Loan when purchasing your home is that you have a contractor with knowledge of the FHA program and who can deliver the work in a timely manner.

Mr. Cave’s website, http://www.streamline203kloan.com provides basic cost of repair analysis based upon square footage, number of bedrooms and baths.

Imagine being able to buy that foreclosed property in the neighborhood you want and being able to go to a design center to pick out you finishes like a new home build.  That’s what a 203 (k) loan can do for you.

While buying a home with an FHA 203 (k) loan is pretty simple in theory.  Make sure the real estate agent you rely upon knows how to present the offer to the seller the right way.

Even though the asset managers whom oversee the sale of a bank’s foreclosed homes are becoming more accepting of these offers, don’t assume that the asset manager you are dealing with is even familiar with the loan.

And make sure your lender and contractor is also experienced.  For more tips on the FHA 203 (k) Renovation Loan Program, call me at 602-540-6832.

Peter Bourdeau has been a real estate investor for over 20 years.  He has been helping people make their dreams of home ownership and private real estate portfolio investing come true since 2000.