As the number of foreclosures on the market as well as fixer-uppers continues to hold (and rise in some areas of southeast Michigan), there’s a growing interest in obtaining these homes.  Despite the need for a little TLC before they’re livable and comfortable, people are starting to look for ways to purchase these homes without having to fork over the repair and renovation costs up-front.

Enter the FHA 203(k) home loan.

This FHA backed loan process lends the buyer of the home enough money to purchase the property -plus- enough money to reasonably accommodate updates and repairs to the home.  The additional borrowed money for updates is paid back as part of the single mortgage.  This is typically over a 30 year mortgage, and in most cases the interest is on par with standard mortgage rates.

Given that this is a standard FHA mortgage, the minimum down payment is still just 3.5%.  It’s important to note though that the FHA 203(K) home loan is only for home owners that will occupy the property and is not intended for investors.

If you want to purchase a unique fixer-upper for yourself and your family though, this is probably one of the best ways to do it.

According to a recent article in the Detroit Free Press, that’s exactly what Brian and Traci Montpas did when they bought a banked-owned property in Flushing in the spring of 2011.  The home had been vacant for more than a year and on closer inspection they found that the copper plumbing as well as the flooring had been gutted from the home.  In addition, a lot of the drywall had holes punched in it.

The total cost for the repairs was in the range of $68,000 – and that’s in addition to what they were paying for the property.  Not a problem though, because with the 203(K) mortgage they were able to get it covered.

“We bought the house and property dirt cheap,” said Brian Montpas — just $124,000 for a 15-year-old house of almost 3,000 square feet, along with five acres, a pole barn and a pool.

“The 203K really helped us out,” he said. “We could make the house like we wanted it.”

The major benefit to this program is the current economic climate in Michigan, especially around Metro-Detroit and southeast Michigan.  We have a lot of homes that have sat empty for months – even years.  As recovery in our local economy starts to stir, we’re seeing people moving toward buying their first home and taking advantage of the big reduction in home and property values right now.

The FHA 203(K) loan isn’t just a great way to cover repairs on an approved home.  It helps buyers save money on the front end of their new home purchase, it puts people into empty houses, and it helps us restore some of the beauty that was prevalent throughout Michigan.  That means neighborhoods all over will see a boost as these loans are utilized and homes are restored.

This is the kind of the thing that helps restore property value among growing neighborhoods.

According to Tim Ross, the president of Ross Mortgage based in Royal Oak “We embrace the program, We just think it makes sense.  There are so many winners”.

At Ross Mortgage, we’re the largest 203K lender in the State of Michigan; we’re proud to be a part of revitalizing the state and helping people make that first home a beautiful one.

Streamline the FHA 203(K)

For those buying a home in Michigan that needs significant repair, the FHA 203(K) can help cover the costs.  If you’re buying a home that requires a little less TLC and just some smaller updates, there’s the Streamline 203(K).  This is designed for smaller projects under $35,000.  It cuts down on paperwork, is a faster approval process and reduces some of the red tape common with government programs.

How to Get the FHA 203(K) Process Started

We usually encourage first time buyers to get their pre-approval secured before hunting for a home.  You can still take the same approach, just look for an FHA-approved lender like Ross Mortgage with extensive experience in 203(K) loans.  This pre-qualification and pre-approval process will let us help you determine what size mortgage in Michigan is most appropriate for you.

With the pre-approval taken care of, start looking for homes that feature a low asking price due to the state of the property.  You’ll want a home with a low enough price to allow room for repairs without expanding your mortgage beyond your budget.

When you have the property inspected, it’s best to use an FHA approved inspector.  This will help you determine what improvements are needed on the home, and if you’ll need a standard 203(K) loan or if the Streamlined 203(K) will work.

Once you take possession of the home, your Michigan mortgage banker will place the rehab funds in escrow, using those funds to handle the deposit for the contractor(s) and any subsequent payments for remodel, repairs and inspections.

What Can You Do with a 203(K)

Updates and repairs to homes are meant to make the property livable, not necessarily “comfortable”.  That means you can utilize the FHA rehab loan to fix up the pool in the backyard.  You also can’t do major renovations like move load-bearing walls or create additions.  There is however a long list of things you -can- do.

• Lead-based paint abatement
• Waterproofing for basements and crawlspaces
• Replacing siding
• Improvements for handicap accessibility
• Weatherization
• Interior and exterior painting
• Kitchen and bath remodels
• Repair, replacement and upgrades on roofs, gutters, downspouts, HVAC, plumbing, electrical and flooring
• Repair and replacement of exterior decks, porches and patios

If you’re interested in an FHA 203(K) loan or a Streamlined 203(K) mortgage in Michigan, I invite you to contact us today.  We’ve helped thousands of homeowners make their new home comfortable and beautiful with these rehab loans, and we would love to do the same for you.

Visit www.MarcEdelstein.com to contact me about your own FHA 203(K) mortgage.

Read more about the FHA 203(K) loan at Hud.gov