Cape Coral Real Estate

We all know that FHA home loans, which are insured by the Federal Housing Administration (FHA), are great financing options for any homeowner who are looking to buy a house or refinance his or her current mortgage.
These loans have low interest rates and usually only require down payments of 3.5 percent! FHA loan requirements are simple, so current and potential homeowners are more likely to qualify for these loans than other types of loans.
The one I had recently was a 203k Rehabilitation Mortgage. And honestly, I’m not to encourage anyone to follow that route!

FHA 203k Rehabilitation Mortgage Insurance Program

The FHA has a specific loan program to help homeowners who need to make improvements or repairs on their home, but do not have the funds to do so.
These loans are called FHA 203k loans and can be used for either a purchase or a refinance.
There are two types of loans in this program, one loan is for repairs that cost less than $30,000 and the other loan is for repairs that cost more than $30,000.
I had the first one since I had less than $11,000 of repairs needed and appliances replacement.

A streamline FHA 203k option is also available to homeowners who are interested in doing non-structural repairs or improvements.
This loan requires less documentation and can be less costly.
It allows a homeowner to finance up to an additional $35,000 into his or her mortgage in order to make improvements to the home.
An FHA home inspector or appraiser can identify home repairs that need to be made but that was not the case with mine.

How the Loan Can Be Used

Although there are some restrictions on what the loan can be used for, there are plenty of renovations and home repairs that the loan does cover.
In general, these include modernization, eliminating safety or health hazards, making a home more accessible for individuals with disabilities, or making a home more energy efficient.
More specifically, the loan can be used for roofing, plumbing, flooring, painting, minor remodeling and more.
However, something needs to be disclose is the time frame that the 203k process will need.
Even if I was pre-approved, 3 to 4 months were needed to close. We had 6 contract extension and I feel that if it wasn’t a forclosed home, the seller would have walked away from this deal.
But it doesn’t stop there. Once the works done, the process to release the remaining checks for contractors is so long that one of them recorded a lien on the property already.
And I can’t blame him, the job is done and he’s been paid 40% of his quote so far.
Plus, try to get in touch in a timely manner with a human regarding all those issues and you’ll understand why I will never go for a 203k anymore.
Of course, this lien issue will make the disbursement even slower!

Loan Requirements

There are certain requirements with this type of financing.
Homeowners must spend at least $5000 on their home repairs in order to be eligible.
Homeowners must get cost estimates from a licensed and insured contractor(s) before signing the sales contract.
The total cost of the mortgage, including the repairs, must remain within the FHA loan limits for the county in which the home is located.

This loan cannot be used to flip houses, and the homeowner must use the loan on the home in which he or she lives.
The work being done on the house must begin within 30 days of the loan closing.
All work must be completed within six months to comply with the loan requirements.

If a homeowner wants to do some repairs to his or her home and wants additional financing, this kind of financing could be the best option.
Many of the same eligibility standards used for standard FHA home loans apply to the FHA 203k loan.
Most lenders will require that the borrower have a credit score of at least 620 to be eligible.
To qualify for the mortgage, certain energy efficiency standards, as well as certain structural standards, must be met.

This loan could be great option for owners who need a better way to finance home repairs and improvements without depleting their savings if they are not afraid about the time frame needed to deal with it.

More about the 203k FHA Rehabilitation Mortgage Program can be found here

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Comments (1) Aug 03 2010

Today, the interest rates are still very low but they will rise soon. It’s cyclic. Some potential buyers may never see a chance to buy so cheap again.

Maybe you are very happy in your actual home, or maybe you don’t see yourself doing something else than renting. But if you have the idea to buy a property, the time is now. And if you don’t, I know you will regret it badly later.

As I write this, the average loan rate for a fixed 30 years is about 5% with no points. And it’s a 40 years lowest!! So this may be a once in a lifetime opportunity.

Historically, in 1970, the rate was about 7.25%, then rose to about 10% in 1973-1974 to then settled at about 8.5%-9% until 1976 to rise again at about 10%, which then, as seen as a OK rate by homebuyers.

But from 1977 to early 80’s, the rate climbed to 18%. Some homebuyers still remember those years today for that fact. Later it was always fluctuating between 11% and 9% until around 2000 when we saw a slow drop of the loan rate down to 6%-7%. That’s why 5% is something rare enough to mention these days…

So, what can we learn from the historical trends and numbers?

In the last 30 years, we saw that 6%-7% was the very low and 18% the very high, with an average of around 9%. So 5% can be seen as a golden digit!

The most important is to understand the actual financial impact the rate has on the cost of purchasing and paying off a home.

Every quarter-point change in interest rates is equivalent to approximately $6,000 for every $100,000 borrowed over the course of a 30-year fixed. While different in each region, for the sake of simplicity, let’s assume that the average person is putting $40,000 down and borrowing $200,000 to pay the price of a typical home nationwide. Thus, over the course of the life of the loan, each quarter-point move up in interest rates will cost that buyer $12,000.

Stay with me now. We are at 5%. It is reasonable for us to see 30-year fixed rates climb to 6% within the foreseeable future and probably to a range of 7% to 8% when the economy is humming again. If every quarter of a point is worth $12,000 per $200,000 borrowed, then each point is worth almost $48,000.

Let’s put that into perspective. You have a good stable job (yes, unemployment is at 10%, but another way of looking at that figure is that most of us have good stable jobs). You would like to own a $240,000 home. However, even though home prices have steadied, you may be thinking you can get another $5,000 or $10,000 discount if you wait (never mind the $8,500 or $6,500 tax credit due to run out next spring). Or you may be waiting for the news to tell you the economy is “more stable” and it’s safe to get back in the pool. In exchange for what you may think is prudence, you will risk paying $48,000 more per point in interest rate changes between now and the time you decide you are ready to buy.

If you are someone who is looking to buy or upgrade in the $350,000-to-$800,000 home price range, and many people out there are, then you’re borrowing $300,000 to $600,000. At 7%, the $300,000 loan will cost just under $150,000 more over the lifetime, and the $600,000 loan an additional $300,000, if rates move up just 2% before you pull the trigger.

What I’m trying to tell is that if you are planning on being a homeowner now or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home. If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime.

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Comments (0) Dec 15 2009