As I discover what I consider to be some excellent opportunities week after week, one theme emerges more than most others: the need for updating and renovations. In this market, even a move-in ready home has to be aggressively priced in order to sell. Those homes that need anything from cosmetic updating to major renovations must be even more aggressively priced– sometimes discounted far in excess of what actual renovations may reasonably cost.
Many buyers might be put off by the need for renovations, especially when they are not capable of making the renovations themselves. In fact, no matter how “handy” a buyer may be, he or she is probably better advised to enlist the aid of a trained, licensed professional rather than do the job himself. After all, we have all heard the horror stories of good intentions turning into terrible renovation attempts, with the net result being a job that was even more expensive than it would have been if the homeowner had contracted to have the work done competently in the first place. But, of course, this raises the real issue: HOW IS THE BUYER GOING TO PAY FOR THE RENOVATIONS? Many buyers are strapped to come up with the 3.5% down payment required by the FHA, so they instinctively pass on homes that obviously need thousands of dollars in repairs or even cosmetic updating. BUT THERE IS A MUCH BETTER WAY: The FHA 203K “streamlined” program.
I focus on FHA financing because most buyers who are wading into the market are probably aware that FHA is by far the most common means of financing a purchase today. The most compelling reason for this is the FHA requires only 3.5% down. I was recently made aware by a lender I work with regularly of a truly fantastic FHA program called the 203K “streamlined” program. I had always been aware of the “standard” 203K program that provides renovation funds to buyers of homes. But, while that program can be very effective, it tends also to be complicated and time consuming. The 203K “streamlined” program, administered by a lender who knows what it’s doing, can be a reasonably quick and efficient way to provide up to $35,000 in funds for renovation– ABOVE AND BEYOND THE PURCHASE PRICE OF THE HOME. There are a number of parameters that have to be met, but none are extremely complicated or difficult. The bottom line is the home is appraised by the FHA appraiser at the value it will have AFTER the renovations have been completed, a licensed contractor is retained by the homeowner to do the work, and the cost of the work is rolled into the final mortgage on the home. Beware, however, that there are only two disbursements of a 203K Streamlined loan-- one draw in the beginning and one final draw after final inspections have been completed by the lender's inspector. So if the buyer's contractor is not willing to purchase materials and pay workers, then wait for reimbursement, the buyer may have to advance some funds and recover them from the final draw. Timing is something to be carefully considered here.
I find that most of the homes in need of TLC that I encounter can be rehabilitated for less than $35,000. A careful buyer and an honest, efficient contractor can complete an aweful lot of work for that sum. I’m not talking about custom gourmet kitchens with Sub-Zero appliances, of course. But I am talking about kitchens–even kitchens using “special order” cabinetry –and baths and flooring and windows and many of the other things that can take a tired, ugly house and make it into a home the buyer can be proud of. And this program can enable a buyer to take advantage of a great opportunity to buy a home in a great, established neighborhood-- an opportunity he or she might have otherwise been frightened away from by the condition of the home and the cost of bringing it up to a standard that he or she would find acceptable.
