The “Fixer” Home – some love it, some hate it, and in the real estate market in Fair Oaks and Sacramento, it seems there are more “fixers” than regular homes. What if there was a way to fix that “fixer” during the buying process, with very little extra cash out of pocket at close of escrow? Thanks to FHA 203k and conventional renovation loans, there is a way.
Most agents worth their salt know that the Federal Housing Administration insures loans for borrowers needing the benefit of minimal cash out of pocket so that those buyers only need to come up with 3.5% of the purchase price for the down payment. However, FHA has strict rules on which houses will and will not “go FHA” – that is, be approved for an FHA loan. Certain qualifications must be met, such as: any appliances installed must work, including heating system; no exposed wiring anywhere; no significant cracks, holes or water damage in floor, walls or ceiling; and many more. (For the full list, click here for an FHA Home Inspection Check List.)
An FHA 203k loan is a little bit different, though. With a 203k, the buyer is pre-qualified for a certain amount and can use up to that amount to purchase and renovate the home. So, let’s say I have a buyer who is pre-qualified for a $150,000 FHA loan. We find a home he wants to purchase for $120,000, but it has some cracks in the walls and the stove doesn’t work. My buyer can use up to $30,000, the difference between the purchase price and the amount he qualified for, to make repairs and improvements.
On a $120,000 house in Sacramento, $30,000 of improvements can make a huge difference!
Because it is still an FHA loan, there are certain restrictions on what types of improvements can be made, but even so, this is an amazing program that can help many FHA buyers get great bargains on some of those “fixers” around town that would normally have to be sold on fire sale to cash investors. I only wish I had known about the FHA 203k when I was buying my home.
For your buyers who can afford a conventional loan, our office has just learned about a product Wells Fargo offers – a conventional renovation loan. The basic idea is the same, but since the loan is not being handled by FHA, there are far fewer rules and a lot more leeway for what the buyer can do. We heard stories from Jen Ostrode, our mortgage consultant friend at Wells Fargo, about buyers who added master bedrooms or bathrooms, or another one who added a permanent foundation to a manufactured home. There are few limits besides creativity and imagination to what your buyers can do with these types of loans.
With all of these renovation programs, typically the only extra costs are about $450-$600 for consultant fees and inspections and an extra 1/4 – 3/8 percentage point on their interest rate. Both buyer and seller should also allow for a 45-60 day close of escrow. Small price to pay to get what could be your dream home at a deep discount.
Combine something like this with the Energy Efficient Mortgage and the ECO program I wrote about previously, and you’ll see that it’s an amazing market for buyers right now. And all of those buyers will need agents, so it’s the perfect time to start your real estate career in Fair Oaks, CA with us at Century 21 Noel David Realty. Call or e-mail our office today for more information.