Maintaining Foreclosed Homes: How to Take Advantage of No Owners
Once a home is foreclosed, the water and electricity are turned off and over time, it becomes overgrown and shady looking. Yet most foreclosed homes are an unpolished diamond in the rough that can be transformed into a lovely haven especially for first time home buyers.
Foreclosed homes cost less than new homes because they're sold at a loss. Investors are keen on getting such homes off their hands to recover their investments. This makes them an ideal choice for first home buyers and investors who want to take advantage of the low prices to sell at a profit later when the market improves or to renovate such homes into rental property. Also, when the real estate market is as sluggish as it has been, there is quite a demand for such houses for their low rates. Another affordable option is homes to fix up. Owners may be selling to buy another home and for the most part, such houses are also low priced as they usually require fixing up.
Fixing it up with FHA 203k or HomePath loans
There are two loan options for those who buy foreclosed homes or fixer uppers to finance home improvements. One is the Federal Housing Agency: FHA 203k The second is HomePath Renovation loans for Fannie Mae-owned homes. With such loans, one can pay both for the house and the cost of renovating it. The loan can then be repaid in a single repayment.
The FHA 203k
There are actually two types of this kind of loan; the Full FHA 203k and the FHA Streamline 203k loans. The latter is most suitable for those who wish to do minimal repairs and modifications while the former is taken in larger amounts to undertake more extensive repairs. With the FHA Streamline 203k loan, a HUD consultant is not needed which is one reason it is the more popular option.
The streamline loan is quite similar to a construction loan. It can be taken to buy a home that FHA would turn down because of the repairs needed. A borrower can borrow the cost of the home and the repairs which can range from $5,000 to $ 35,000. Other loan regulations are similar to those of FHA loans including UFMIP and MIP. Repairs can only be started once the loan is approved and the funds are availed through an escrow account that is set up once the loan closes.
These loans also come in two options; the Homepath loan and the Homepath Renovation loan. This was an innovation of Fannie Mae in response to the high number of foreclosed homes when the economic downturn hit with the renovation loan being offered to facilitate purchase and repairs.
One requirement for renovation loan is therefore that the property they wish to acquire is owned by this company. The amount loaned also covers purchase and repairs with can be up to 35 percent of the as-completed value but cannot exceed $35,000.
The initial deposit is as low as 3 percent and the interest rates can be adjustable or fixed. Borrowers don't have to pay mortgage insurance and appraisal is not required either. The loan can be taken to purchase second homes and investment or commercial property.
The FHA 203k or the Homepath loan?
One simple factor should determine which kind of foreclosed home one should go for. If the property is owned by Fannie Mae, go for the loan they are offering to take full advantages of the easier checks and provisions like no insurance or appraisal. If it isn't the FHA 203k is also affordable and not too difficult to qualify for.
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