Instant equity: 203K loans

February 27, 2013 3:04:39 PM PST
There's an interesting option that allows you to make repairs to your EXISTING property or make repairs to a NEW one, all with ONE mortgage!

We're talking about something called a renovation or rehab loan. It provides financing to buy a fixer-upper AND the CASH to pay for all the renovations after closing!

No need for out of pocket money or a second loan. This is especially great for people looking to buy a distressed home in foreclosure.

We visited Christina Park's first house in Pennsauken, N.J. Before it can become her dream home, it needs work.

The good news is, Christina was able to buy the house AND get money for repairs all in ONE mortgage loan.

"I had money in a savings account," said Christina. "But it allowed me to kind of hold on to it for emergencies.. And with the loan I could do stuff that I needed to get done for the house.. And I got it at a really good price."

And by using a 203K, Christina got instant equity!

Considering her planned improvements, her house at closing was already appraising for THOUSANDS of dollars MORE!

"She was making $31,300 in equity in this property before she even moved in the door," said Jeff Onofrio of Anniemac Home Mortgage.

"I was a little shocked, I was!" said Christina. "Because I didn't know how much the house was appraised for beforehand."

But be advised: not all lenders offer the 203K. And you should use a lender and a CONTRACTOR who are proficient with this special mortgage. They get paid directly by the bank as the work is completed.

"We're going to draw and manage the money," said Christina, "so this way we're not just giving money out to a contractor and hoping the work will get done. It needs to get done first."

And the 203K is a little more expensive than a regular loan.. Expect to pay for additional things like updating the title and re-inspections. Those will cost you about one to two percent of the loan amount.

"And the interest rate's typically about a quarter percent to half a percent higher than a regular FHA loan," said Jeff.

But Christina says considering the instant equity, it's worth it.. Plus, she likes that her lender's 203K consultant supervises the repair work and pays the contractor directly.

"I don't have to worry about it so much," she said. "I don't have to manage it. I have somebody that I trust that I know is going to get the work done for me, so that's a good thing."

The cost of the rehab must be at least $5,000. And the buyer must be FHA-qualified and also be the primary resident.