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If you want to buy a home that needs repair, there is a loan program that could be a good option for you. You can finance the purchase of a house and include the cost of its repairs through a single mortgage.
Section 203(k) loans are provided through mortgage lenders nationwide. The property must be used as your principal residence. The total amount of your mortgage will be based on the projected value of your home after the renovation is completed, taking into account the cost of the work. A portion of your loan is used to pay for the purchase of the home. The remainder is placed in an interest-bearing account on your behalf and released in stages as rehabilitation is completed.
The loan requires that you use a minimum of $5,000 toward eligible repairs or improvements and that you complete the repairs within six months after the loan’s closing depending on the extent of work to be completed. This first $5,000 primarily covers eliminating building code violations, modernizing, or making health and safety-related upgrades to the home or its garage. You may add minor or cosmetic repairs after this requirement is satisfied, if applicable. You cannot include improvements for luxury items such as tennis courts, gazebos, or new swimming pools.
The Section 203(k) loan covers a range of home improvements. These include, but are not limited to, the following:
* Remodeling bathrooms or a kitchen, including new built-in appliances
* Replacing a roof, gutters, and downspouts
* Adding a family room, bedrooms, or bathrooms
* Replacing flooring, tiling, or carpeting
* Completing a basement or attic conversion or adding a second story
* Expanding or building a garage or carport
* Renovating a deteriorating property, such as repairing a chimney, termite damage, or structural problems
* Upgrading plumbing, heating, air conditioning, or electrical wiring
* Eliminating health and safety hazards, such as removing lead-based paint
* Making the home accessible to the disabled
* Installing a well or a septic system
* Adding a porch, deck, or patio
* Adding or repairing siding or repainting
* Installing energy efficient windows or doors
* Repairing an existing swimming pool
If you are not planning to live in the home during construction, you may finance up to six months of mortgage payments during the renovation period. In addition, you may act as your own general contractor or do the actual repair work yourself, if you are qualified. Any money you save this way can be used for cost overruns or additional improvements. You can be reimbursed only for actual material costs, not for your own labor.
Because many borrowers need professional help in determining needed repairs or improvements, your lender will assign a consultant to assist you in planning the work and developing cost estimates. The consultant will perform the home inspection, identify needed repairs or improvements including health and safety problems, and provide a work write-up and cost estimate to you.
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