FHA Rehab Loans Can Cover All

By James Woodard

August 12, 2013 5 min read

Homebuyers of fixer-upper properties face two challenges: worrying about how to get a loan from tight-fisted lenders and fretting about how to pay for the rehab, according to a report from Real Trends.

Now there's a way to do both without dipping into your savings or your retirement funds. The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development, offers loans covering both the renovation costs as well as the purchase price of a primary residence — all for just a 3.5 percent down payment.

But there's one exception — investors need not apply.

The FHA's 203(k) renovation loan, also known as the FHA rehab loan, is HUD's primary program for the rehabilitation and repair of single-family properties. The 203(k) loan is like a construction loan, with the first draw of the mortgage money going to buy the house and put the deed in the new owner's name.

Then subsequent draws are made to pay the contractor for rehabilitation work as it is completed. The FHA 203(k) loan was designed for individuals who want to rehabilitate or repair a damaged home so they can live in it as their primary residence.

Q: How will mortgages evolve during the second half of this year?

A: Home mortgages will be available at slowly rising rates during the second half of 2013, but lenders will remain very cautious in reviewing and approving applications.

The Mortgage Bankers Association reaffirmed its outlook for mortgage originations in the second half but lowered its forecast for US economic growth. MBA expects originations in the second half of the year to total $606 billion.

That's up from the $527 billion it had forecast at the beginning of the year but down considerably from the estimated $976 billion in originations during the first half of the year.

The increase in the forecast is due almost entirely to carryover refinance loans originated during the second quarter that will close in the third quarter. Purchase loan originations during the second half of the year are expected to total $312 billion versus the $299 billion originally forecast.

Q: How do people really feel about home ownership?

A: About 80 percent of Americans said they believe buying a home is a good financial decision, up by 8 points from 2011, according a survey from the National Association of Realtors.

Over the last two years, the market has also seen an increase in renters who are interested in owning. In the recent survey, 36 percent of renters said they are thinking about buying, up from 25 percent in 2011, while 51 percent of renters also said that owning in the future is one of their highest personal priorities.

Not only are views toward housing stronger, but Americans are also less concerned when it comes to job security.

Q: Is the use of eminent domain in California a good idea?

A: David H. Stevens, President of the Mortgage Bankers Association, issued the following statement on a proposed program in Richmond, Calif., that would allow local officials to use eminent domain powers to seize mortgages and force financial losses on millions of homeowners: "The program is a short-term solution for a few underwater borrowers that will have severe negative long-term costs for every homeowner in the city. Mortgages in Richmond will become more expensive, making neighboring cities more desirable for prospective homebuyers, which will hold down home values for everyone in Richmond.

"In short, the program is ill-advised and likely unconstitutional and will add to Richmond's problems rather than solve them."

Q: Is there a decline in the number of distressed homes on the market?

A: Completed foreclosures and distressed inventory continued their downfall in June, CoreLogic reported. Data for last month showed 55,000 homes were lost to foreclosure, down 20 percent from June 2012.

The level of foreclosure inventory also came down in June. According to the estimate, about 1 million homes were in some stage of foreclosure, which represents a 28 percent annual decrease. The yearly decline marks the 20th consecutive month inventory has trended down.

To find out more about Jim Woodard and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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