An FHA 203K loan could offer the best solution to buyers working with a lender or Prospect Mortgage to secure financing. Interest in a distressed property shouldn’t act as a barrier to home ownership, and there are ways that a realtor can help buyers qualify for a mortgage when a home needs repairs.
Additionally, this type of financing exists for purchases of short-sales and foreclosures, as well as any properties placed under the “distressed” label. The opportunity to include distressed, foreclosed, or short sale properties as possible purchases may be the best way to find a buyer a home in a competitive market.
Likewise, sellers who own distressed properties will be able to take offers from buyers who can’t pay in full and must obtain financing in order to make a purchase.
203K Loan Basics to Share with Buyers
New and veteran home buyers will likely need clarification on some of the differences between a traditional mortgage and 203K loans. Buyers and realtors alike must be prepared to wait longer to complete the application process for a rehab loan.
The main difference between traditional mortgages and rehab loans is that a 203K loan provides funds to complete repairs of the home. This means a contractor will need access to the property so as to craft an appropriate bid for the project. Additionally, a HUD-approved inspector must look at the property, which takes time to arrange.
Let buyers and sellers know that the closing date probably won’t be scheduled for at least 60 days. Some loans are completed in about a month and a half, but 60 days is quite common for the full timeline.
Crafting the 203K Offer/Proposal
Applying for an FHA rehab loan requires a written proposal that’s different from the proposals used for non-rehab loans. Within the purchase offer, agents must make sure that the proposal mentions that a 203K loan will be used for the purchase.
Figures used while crafting the proposal include the following:
- List of likely renovations
- Cost of required improvements
- Post-renovation value of the property
In addition, the proposal must mention that the contract is contingent upon loan approval, as well as the buyer’s agreement to improvements of the property.
Tips to Make Happy Buyers
Successful real estate agents thrive upon recommendations and repeat business from customer reviews. Ensure a buyer’s complete satisfaction with the purchase experience by offering these simple tips during the application process:
- Tell the buyer that he or she should have a contingency fund just in case repairs don’t go as planned.
- Encourage the buyer to shop around for contractors or provide a trusted recommendation on an experienced contractor.
203K Loans Always Should Be On the Table
Realtors should note that 203K loans aren’t solely for distressed properties. In some circumstances, working with a buyer or seller might require a creative approach to lending. A 203K loan could be the best way to secure financing.
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Disclosure last updated September 4, 2013