With so many foreclosed properties for sale, many buyers are finding they can obtain a good deal on the purchase of a home. It’s true you can purchase a home under foreclosure for much less than fair market value, but purchasing a foreclosed home isn’t always the easiest process. Many times banks are strict about an “as-is” policy limiting the negotiating power of the buyer. Foreclosed homes may be in need of many repairs to bring the quality of the home up to par. Some properties are left intentionally damaged by the evicted owners that defaulted on their mortgage. Buyers may get a good deal on the purchase of the home but they could face additional costs of repairing the home.
FHA 203(k) Loan
In previous years, buyers would apply for a loan to purchase the house and one or more loans to obtain the funds to cover repair costs. A new federal home loan program allows for buyers of foreclosed properties to obtain a loan that encompasses the purchase price of the home and enough to make the necessary repairs to the home. The Federal Housing Administration (FHA) is a part of the Department of Housing and Urban Development (HUD), which offers mortgage insurance programs to borrowers. The FHA 203(k) loan program is designed to help buyers that do not have enough cash for repairs. With this loan, buyers can obtain the mortgage financing they need to buy and fix up the property. The goal is to expand homeownership opportunities and renovate neighborhoods by providing buyers with the financial means to make repairs, which will increase property values.
To qualify for this federal loan program, borrowers must apply the loan to a primary residence. The loan is not eligible for second, investment or vacation properties. The loan applies to one-to-four unit dwellings. The FHA 203(k) loan requires improvements to the safety, health and energy conservation of the dwelling. The federal loan program is to be used for an existing property; properties less than one year of age are not accepted into the program. Lenders will only require a minimum of 3.5 % down payment when securing the loan, assisting those who may have been excluded under previous loan programs.
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