Home buyers in low inventory areas are often drawn to the possibility of purchasing a distressed property – not only to help their dollars go further but to open up their search options as well. Distressed properties come in a variety of forms, with short sales, foreclosures, and real estate owned (REO) being the most common. And while they differ from traditional sales in some ways, there is a special loan offered that makes acquiring distressed properties a bit easier.
FHA 203k Loan (also known as a rehab loan)
This is a special loan available through the Federal Housing Administration, which allows individuals who will eventually live in the home they have purchased to roll the cost of renovation into the mortgage. This eliminates the need for a second home improvement loan.
The main reason to finance a distressed property with a renovation loan is that these homes generally have extensive damage that must be repaired before they are habitable. If a home has been sitting empty for some time, it may be stripped of plumbing and cabinetry. Sometimes angry former homeowners will have deliberately vandalized the property. This isn’t always the case; however, more often than not you will need to be prepared to put some money back into a distressed property to turn it into your dream home.
Advantages of an FHA 203k loan include:
- Owners may finance the total cost of the repairs in addition to a contingency for unanticipated expenses.
- The loan may be used to make up to six months of mortgage payments while the rehab is underway.
- Renovations may be structural or cosmetic as long as they are at least $5,000.
- The renovation may be a complete teardown, provided that the new home is built on the existing foundation.
If you’re ready to check out distressed properties the first thing you want to do is get a pro on your side. Metrowest specializes in these types of sales. Give us a shout today – we’d love to help you start the process.