Dollars For Distressed Homes

Facebooktwittergoogle_plusredditpinterestlinkedinmail

StarTribune.com

By LYNN UNDERWOOD, Star Tribune

Last update: October 28, 2009 – 7:13 AM

Plenty of home buyers are sold on a home
because they love the kitchen. Jeanna Sabers
wanted to buy a home because it didn’t have
one. Last summer, Sabers purchased an
almost 100-year-old fixer-upper in south
Minneapolis. The vacant, bank-owned 
property needed a host of repairs — and a
kitchen. All that was left in what was once the
kitchen was a sink and a cabinet. With the
help of an FHA Streamlined 203(k) rehab
loan, she bought the foreclosed house at a
low price and obtained a mortgage and fix-up
money rolled into one loan with one monthly
payment.

Sabers paid $107,000 for the two-bedroom
house, which had previously sold for
$169,850 in 2003, and added in $10,000 to
pay for improvements. But there was a catch:
To meet the rehab loan requirements, Sabers
had to hire a licensed contractor and bring
the home up to FHA standards within six
months.

Two months later, Sabers had a new
sunflower-yellow kitchen with white
enameled cupboards, black laminate
countertops, new appliances and refinished
hardwood floors. There were new light
fixtures throughout the house and the
basement boasted a new washer and dryer,
which were also missing when Sabers closed.
Her house now has an appraised value of
$135,000.

“With the loan I got a finished kitchen the way
I want it,” said Sabers of her first home. “And
it helped me budget my house payment.”

Popular tool

The FHA-backed Streamlined 203(k) rehab
loan is a hot home-buying tool in today’s
market. That’s because there’s a large
number of foreclosed and short-sale houses
that can’t pass property inspections or meet
mortgage financing standards. The banks
that now own the houses aren’t in the
business of repairing homes, many of which
are damaged or stripped. So it’s up to new
homeowners to make them safe, comfortable
and energy-efficient.

“It’s one of the few games in town for buyers
to get financing to fix up a lot of bank-
owned, foreclosed properties,” said Randy
Cullen, branch manager at Fairway
Independent Mortgage in Bloomington, who
handled Sabers’ loan. “FHA provides a low
down payment option coupled with
renovation dollars all rolled up into one loan
at a competitive interest rate.”

With money from the Streamlined 203(k)
rehab loan, new homeowners can carry out
improvements such as a new roof,
appliances, furnace, carpet, cabinets and
energy-efficient windows. Typically they can
borrow up to $35,000 and have up to six
months to get the work done. However, if
they need to do more complex major
renovations or foundation repairs, they have t
o apply for a standard 203(k) loan, which
offers higher loan amounts.

First-time home buyers, who are driving the
majority of home sales, are snapping up the
more practical and affordable Streamlined
203(k), say mortgage lenders.

The 203(k) is Wells Fargo’s most popular
rehab loan program because it helps buyers
get a house at below-market value. This year
Wells Fargo funded twice the number of 203
(k) rehab loans as last year, said Jim Hunter, a
Wells Fargo Home Mortgage renovation
expert.

And Kris Wilson, senior loan officer at
Fairway, predicts the number of rehab loans
will continue to rise. “The nicer foreclosed
properties are already being snapped up,”
she said. “That leaves the ones in need of
more repairs available.”

Although Sabers said taking out a rehab loan
to fix a foreclosed home was a perfect fit for
her situation, she realizes it’s not for
everyone.

“It can be stressful because it’s a fast timeline
and a lot to take on,” she said. Sabers had to
get bids, shop for materials and appliances,
and make sure the work was done on
deadline. But she’s glad she signed up.

“It was rewarding when it was all finished,”
she said. “All the stress and running around
was worth it.”

Lynn Underwood • 612-673-7619

Comments are closed.