Home-rehab dream ruined? Try a 203(k)
In January 2009 the Philadelphia Homeowner Center -- one of four in the country -- insured about 40,000 FHA loans, while in 2007 the center averaged 11,000 loans per month. All four centers totaled 144,000 loans that month.
But as a last-resort destination, there aren't many signs helping people find it. On the seller/Realtor side and the buyer's side, "few people really know or understand the loan," says Vance, who has a few clients currently going through the program's underwriting process.
"I believe that the program is very confusing for consumers in general," says Renee Porsia, an associate broker with RE/MAX Action Realty in Maple Glen, Pa. "I know that my clients, even after having the program explained to them, still didn't fully understand what needed to be done."
OK on 203(k)?
Glavey sees this program as a "win-win-win for the buyer, the lender and the FHA -- and ultimately the community." Which buyers should get into the game?
"This is a wonderful program for buyers who don't have the required 10 (percent) to 20 percent down payment required for a conventional loan," says Mosier.
Libby Sosinski, a Realtor with Keller Williams Realty in Pittsburgh who specializes in selling foreclosures and investment properties, believes the program "is an excellent way for many buyers to purchase properties in poor condition. It also helps them to afford the repairs that they may have struggled to do without this specialized loan."
Porsia likes that the program fits a variety of property types. According to HUD, the property can be a one- to four-family dwelling that was completed at least a year earlier. It could be used to convert a one-family dwelling to a two-, three- or four-family home or vice versa. A 203(k) mortgage may also be originated on some mixed-use residential properties. In addition, homeowners who need to refinance and rehabilitate their own dwelling can look to the 203(k).
The program is "great for first-time homebuyers who couldn't otherwise afford to purchase a home that was in need of repair," Porsia says.
But Vance doesn't see the program as good for first-time homebuyers. "This is geared for someone who's looking at their home as an investment and is willing to put in the time and effort," he says.
Unfortunately for those who want to pursue a 203(k), the number of lenders that work with the program has been limited so the interest rate is usually a little higher, Glavey says. "Not every lender wants to roll up their sleeves and get involved in repair work." But this may be changing, as he says the FHA lender approval division in Washington, D.C., now has record numbers of lenders seeking FHA approval. (A lender with FHA approval doesn't necessarily have to participate in the 203(k) program.)