Connie Belmont, Sarasota real estate agent
Connie Belmont, Sarasota Realtor
For Sarasota Florida Real Estate Excellence
Cell Phone   941.228.9682        E-Mail:
Sarasota realtor, Connie Belmont
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An FHA 203(k) Loan Can Be a One-Step
Way to Buy a Second or Retirement Home as a "Fixer-Upper" on via a Short-Sale

    There are lots of fixer-upper and short-sale properties on the Sarasota real estate market that may present to you a very desirable opportunity to become that second home or retirement home you've been thinking about for a long time. But, the problem with most all "fixer-uppers" and short-sale properties is that they are generally in less than good condition and many times much worse than that. In some cases, the interior may just be dated and needs to be updated with paint, carpeting, appliances, etc. In other cases, the property may need a new roof or heat pump in addition to interior remodeling.

    A Sarasota real estate agent specializing in homes in The Meadows stated that "statistics suggest that 35% to 40% of all the homes on the Sarasota real estate market today are in below average condition or worse, generally because they are properties that have not been kept up by thier owners or have deteriorated during the extended period they've been on the market." There are plenty of homes like these out there waiting for buyers, but they come with a big "but."

    You may not be familiar with the normal process involved in buying a home that needs to be renovated or even just remodeled if you don't have the cash available to pay for the required renovations.

    Most independent mortgage providers will only provide "permanent" financing. That is, the lender will not usually close a loan and release the mortgage proceeds unless the condition and value of the property, on the day of closing, provides adequate loan security. When refurbishment is going to be involved in your purchase of the homes, a lender typically requires the improvements to be finished before a long-term, permanent mortgage is made. As a result, when a home buyer wants to purchase a house in need of repair or modernization, the buyer, without a lot of cash available, may have to obtain three separate forms of financing:

  • first, an interim loan to purchase the home in its current, or "as is" condition
  • second, an additional loan to pay for the planned renovations and remodeling
  • and finally, a permanent mortgage when all of that work is completed to pay off the two interim loans and replace them with a permanent mortgage.

    Frequently, the two interim financings involve relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property.

This complexity is why an FHA 203(k) loan is a convenient way to finance the purchase of a short-sale or fixer-upper second home that needs some work.

Are you familiar with the Federal Housing & Urban Development (HUD) Department FHA 203(k) loan program? Probably not because it's about the best kept secret in the home mortgage field today. Put simply, an FHA 203(k) mortgage loan is one where the loan can be written initially to recognize the value of the home not as it is today, but what it will be worth after being renovated.

    To qualify for a 203(k) loan, you'll need to have:

  • a minimum down payment of only 3.5% of the purchase price
  • a reasonably good FICO credit score (in the range of 640 or better), and
  • no other FHA loans currently outstanding

You do not have to be a first time buyer.

    Single-family homes in Manatee and Sarasota county can be financed under the 203(k) program up to a limit of $442,500. You should, of course, confirm these conditions with your Realtor and a mortgage professional who is approved to offer FHA loans.

    There are two types of 203(k) loans. The first is the "streamline" version. This allows you to finance into your mortgage up to $35,000 of renovations and remodeling costs for things like appliances, kitchen and bath remodeling, paint, carpets, new heat-pump/air conditioner, as well as repairs to decks, patios and the roof. Under the streamline process, you can cover most remodeling tasks that do not require structural changes to the home.

    If that second home or retirement home you're interested in needs more complicated projects involving structural changes, such as the addition or an attached garage, then you will need a "standard" FHA 203(k) loan. If you are considering a renovation this extensive, you'll probably need the services of a architect or engineer and most likely require a building permit to assure that your project meets local building codes. But, the point is that even these types of renovations can be covered by an FHA 203(k) loan.

    Either form of a 203(k) loan can be the perfect solution for buyers who can see beyond the current condition of a home and have a vision of what a less-than-perfect home could become with an investment of some effort. The 203(k) program was developed for exactly that kind of buyer and it may be the answer to the sale of the high number of distressed properties currently on the market.

    An experienced Sarasota Buyer's Agent can help you better understand the types of homes available on the Sarasota - Bradenton real estate market that might fit your needs and desires and put you in touch with a qualified mortgage professional who can guide you through the 203(k) process.

Information in this article has been drawn from various sources and while it is thought to be accurate and timely, it is not warranted.
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Connie Belmont,  Sarasota Real Estate Agent

Rampart Homes of Sarasota Florida
4401-E Ashton Road,  Sarasota, Florida  34233
Cell Phone  941.228.9682       E-Mail:
Sarasota FL real estate