So you are ready to rehab a home. You have seen the shows on TV and boy they make it look so easy. We will leave the construction tips for a future article and focus on the most important part – finding the money. The problem here is banks aren’t real keen on loaning money on a home that needs major work. Recently my buddy Tim came to me wanting to buy a quaint cottage on Swinton Ave. just a few blocks south of Atlantic Ave. Delray has a lot of these homes built in the 40’s and 50’s in great downtown locations but traditionally they need a decent amount of renovations and upgrades to become a viable alternative to a newer home. After sending an inspector to the home and meeting with a few contractors we determined that it needed over $30k in upgrades. A bit more then Tim really wanted to come out of pocket with all at once. That afternoon I was meeting with our go-to loan officer, Shane and decided to bring him into the loop to see if he had any suggestions. “Let’s see if we can get him approved for a 203K”, says Shane. 203k? Stupidly I tell him that I think Tim already has a 401k with his work but what does that have to do with getting a loan. (cue laughter) It turns out that a 203k is an FHA loan designed specifically for this situation. To put it in “Lehmann’s Terms“ a 203k is a hybrid between a traditional mortgage and a construction loan. The bank loans you a predetermined amount of money that includes the purchase price of the home and enough to get the necessary upgrades and repairs done. They then pay the contractors in installments as the work is completed.
Some key points to keep in mind. • Owner must plan to occupy the property to qualify for a 203k loan • May qualify for as little as 3.5% down • The streamline application allows for up to $35k in repairs • Contractors must get approved through the bank • Work must increase the value of property accordingly for it to appraise out • Approval could take a few months (although Shane got this one done in 30 days) Tim was able to purchase the home and get approval for $32k in construction and upgrades. Among the projects are entirely redoing the kitchen, new floors, and installing new air conditioner. After the closing Tim opened a bottle of American Whiskey his brother Cole had sent us to celebrate. Cole is overseas fighting for our country so that we all have the opportunity to live the American Dream. Cheers!!