I wanted to speak about this loan product that is available for today's market. The FHA 203K loan offers a very low down payment of only 3.5% and allows you to include home repairs in your mortgage.
This is how it works. Let's say you buy a house for $100,000 that needs $30,000 in repairs. Your down payment is based on the total amount of $130,000. If you can get the seller to help you with your closing cost, you can get in this home for as little as $4550. Understand, there is a SUBJECT TO appraisal - In this example, the home must appraise for $130,000 after repairs. This appraisal is completed before you close and before any of the repairs are made.
How can they do this? The contractor that you hire to do your work will get an estimate together. He will run this by an FHA consultant working on this deal. The consultant will make sure the numbers look like they could work and then they send it to an appraiser. The appraiser knows what kind of work needs to be done and can issue a SUBJECT TO appraisal.
My wife and I are currently using this product for a house that we purchased in Wilmington, NC. This is a good product for neglected foreclosures and short sales that are on the market. We purchased a foreclosure and included about $40,000 dollars in repairs and remodeling. This loan does take a little longer than normal. It is important that you use a lender that knows how to navigate through this process. There are some good 203k certified lenders in the area such as Mark Vernon with Prospect Mortgage.
Ask your real estate agent or mortgage professional about the FHA 203K.