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Home-rehab dream ruined? Try a 203(k)

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But Porsia knows of lenders that "hate to use the program because they get bogged down in paperwork." That paperwork can mean a longer waiting period before closing so she wouldn't recommend the program to impatient buyers. But Glavey says, "It shouldn't be an inordinate amount of delay," provided the buyer uses good contractors.

That has been Sosinski's experience. Buyers of her properties who used the streamlined 203(k) typically close in the normal 30-day period, she says. "However, buyers do need to be persistent in getting their bids together. If you have a buyer who is lax about doing their part of the loan, it can delay things." Since buyers can be charged $100 to $150 a day for not closing on a foreclosure property on time, there's some built-in incentive to keep moving on the bids.

Buyers must also be prepared to fork over the minimum down payment based on the total of the sale price plus the estimated cost of repairs, Mosier points out.

If you're 203(k) ready
A visit to the HUD Web site's 203(k) page is a good starting point for more information on the program. The resources include a detailed description of eligible properties and improvements. While 203(k) loans can't be used for luxury items and improvements that do not become a permanent part of the property, items such as painting, room additions and decks are allowed, even if the home doesn't need any other improvements. Information on maximum mortgage amounts, fees and the application process can also be found at that site or by phone at (800) 225-5342.

Getting in touch with an FHA-approved lender is the next step. It can be helpful to find a real estate agent who is experienced with 203(k) loans, Porsia suggests.

And while dreaming of your new home, just be sure to keep it real. In Glavey's experience, "buyers sometimes have a false expectation that they're going to get the Taj Mahal after the work is done."'s corrections policy -- Posted: April 6, 2009
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