Have you ever heard of a Homebuyer Rehab Loan?
Many potential buyers don’t realize that they can get a lot more home for their money by buying a distressed property with a 203K loan.
The FHA 203K loan simply includes the cost of rehabilitating a distressed property in the total mortgage on the home.
The value of using an FHA 203k loan, explained in simple terms, is as follows:
When someone buys a house that is ready to move in, they will most likely pay fair market value for this house. If you apply for an FHA loan, your down payment will be 2.5%. Any modifications they wish to make the house “their own”, such as changing the kitchen or bathrooms, will be an additional cost after the sale and this cost will be borne by the buyer.
For example, a person purchases a move-in ready home at its fair market value of $400,000.
A similar house in the same neighborhood is also for sale, but this house is run down and in need of updating and repair. For this reason, the buyer will pay much less for this property, and with a FHA203K loan they will be able to fix and repair the house to the same standard as the first house. In general, this in total can be done for much less than the cost of the first home, so the new distressed home buyer will have immediate equity in the property. This is also known as “workforce equity.”
To explain this, let’s say you paid 80% of the post-repair value (80% of $400,000), so $320,000 and the property needs $35,000 in rehabilitation and repairs. The FHA 203K loan will allow a loan amount of $355,000 that covers both the purchase price and rehabilitation or repairs to bring the home up to the same standard as the first home, for example, a home with a fair market value of $400,000. The added advantage is that you can select your kitchen or other improvements and adapt them to your liking during the rehab/repair. You now have $45,000 of equity in the house.
The FHA 203K loan is ideal for financing your purchase and repairs/rehab with a single loan, plus all the benefits of an original FHA loan.
The explanation above is a very simplified form of this process and there are strict guidelines that you will need to follow when rehabilitating with an FHA203K loan. Be sure to discuss all of these requirements with your lender in advance.
For help obtaining a list of distressed homes in Southwest Florida, feel free to visit https://greaterswfl.com/fixer-upper-homes