What are FHA 203 (K) Loans and How Do They Work?

It is not uncommon for home buyers to come across property which is no longer of good shape or is simply outdated. So, the question becomes "how can a person finance the needed repairs or modernization efforts on a property without having to deplete all of their liquid assets?" One answer may be a FHA 203 (K) rehab loan.

The HUD web site does a good job of explaining what sets the 203 (K) program apart:

"When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. To minimize the risk to the mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point the lender has a fully-insured mortgage loan."

Properties must be 1-4 units, have been completed over 365 days prior, meet local zoning codes (for units), and newly constructed units must be attached to the original structure. Coops are not acceptable. These loans are not typical construction loans so if you plan on demolishing the property, you will need to speak with a knowledgeable loan professional about what part of the existing foundation must remain. People also use these loans to build additional units onto their properties and, conversely, to scale back their multi-family homes into single family properties. Single unit condos may also be considered eligible if they are HUD approved condominium developments.

From my years in the mortgage industry, I learned that the vast majority of loan advisors have zero idea how these loan work (myself included). I would highly recommend seeking professional assistance from a licensed individual who has several of these loans under his or her belt. In other words, this is not the type of loan to be the guinea pig on.

I believe that American Financial Resources, who is a direct FHA mortgage lender, offers these loans. If not, they may be able to at least point you to someone who does. You can also search for FHA approved lenders on HUD's web site.

Investment Property Spotlight - Charlotte, North Carolina

Every month we take a look at investment properties in various markets throughout the country. This go around we chose Charlotte, North Carolina. The spotlight property is a duplex listed for $375,000 at 1801 Runnymede Lane in the Barclay Downs neighborhood. The 3200-3900 sq/ft. property, built in 1978, has three bedrooms and 4 baths. According to the listing description on RealEstateNorthCarolina.com, the property is in a great location and it has a large front porch, tile foyer, and a back deck. Both units have similar floor plans plus the 2nd unit has a small basement area.

Let's do a little math (making some very broad assumptions):

Listing Price: $375,000
Let's just say you could get the home for $365,000
25% down on $365,000 = $91,250.
This would leave a loan balance of $273,750
If you could get a 5.000% note rate on a 30 year fixed rate mortgage, your monthly principal and interest payment would be $1,469.55

For more Charlotte mortgage information, you can contact American Bank's Charlotte branch at 877-215-2290.

Please keep in mind that we are only using the number above for example purposes only. We are not mortgage or financial professionals and we encourage you to speak with a licensed professional for assistance.

MLS number used in the search was: 973147

Can a VA Loan Be Used to Buy an Investment Property?

A qualifying buyer can use a VA loan to purchase most multi-family homes. However, according to VALoanCenter.com, the home must be used as the borrowers primary residence and thusVA loans can not be used for non-owner occupied investment property financing. When a VA borrower is obtaining their loan they are asked to certify that they intend to live in the home. VALoanCenter.com states that the only exception to this requirement may be for an IRRL (aka an Interest Rate Reduction Refinancing Loan).  With this type of a mortgage, the borrower must certify that they previously occupied the the home as his or her primary residence. This makes sense considering how often military personnel are required to relocate. For more information, contact a licensed mortgage lender or mortgage broker in your area.

Preparing to Sell Your Rental Property

Selling a rental property can be a time consuming and labor intensive experience. One of the first decisions you will have to make is whether it is in your best interest to try selling the property yourself or work with a real estate agent. If you own a multi-family home, you already likely know what a headache coordinating one plumbing appointment can be. Think amount having to organize 50 showings with 4 tenants. Yikes. If your property is a single family home or a duplex, the time requirement will obviously be less of a deterrent. Sure, a real estate agent's commission may eat away at the equity you have built in your home but it still might be worth while.

Once you have decided whether to go the fsbo route or list with an agent, it's time to do a little window dressing. You only have one shot to make a first impression. Make sure that the photos you or your agent take of the property look awesome. There is nothing dumber than posting terrible photos of your home in the MLS. If necessary, pay a couple of hundred bucks to have a professional photographer take photos.

You will also want to get out the rake and your paint brush and start cleaning up the yard and painting the trim along the front of the home. Also, hit your local garden center for a few bags of mulch and some fresh flowers. This may end of being the best hundred dollars you spend.

If there are tenants in the home, you may be limited on the amount of work that can be done inside the property. You still may be able to work on common areas of the home such as the entrance way which the buyers will walk through multiple times during a showing.

If the home has a security system, you'll want to speak with a professional to ensure that it is in working order. You can search for a local ADT security professional online. If the current system is out-of-date you may need to upgrade or make adjustments to your asking price accordingly.

With the current real estate market in many parts of the country still reeling, more and more sellers are turning to home stagers to make their properties stand apart from the competition. Many of these professionals can work with the furniture you already have. They may be able to help you give the property a face lift simply by rearranging the items in your home.

Best of luck selling your property and feel free to post your tips in the comments section.

The Lowe's Katrina Cottage

Have a lot you'd like to build on? You have to see the Katrina Cottage from Lowe's. I stumbled across this while researching FEMA's emergency housing - the cottages were designed by Marianne Cusato as a (much cuter and more stylish) alternative to the travel trailer that housed many who were displaced by hurricanes Katrina and Rita. It's not surprising that the design was an instant hit, and Lowe's began to market the home as a kit.

You can buy the plans and all the materials and build it yourself or with help from a contractor. (Lowe's strongly cautions that this is not a beginner project - and that there is a lot involved with building a house that is not included in the plans such as permitting and a foundation and/or pilings.)

The homes range in size from 1 bedroom, 1 bath and 308 sq ft (great as a guest house or vacation cottage) to a 5 bedrooms and 1807 sq ft. Estimated cost ranges from $34K - $198K, but will vary widely based on the size of the cottage, the materials used, and the area the home is being built in (cost of materials, labor, and permitting can be very different from one part of the country to the next.)

The designs are charming and the brightly painted examples on the website add to the appeal. See them for yourself at www.lowes.com.

Learn more about the designer and see more examples of the cottages at www.cusatocottages.com.