As you search for historic homes for sale, you may wonder how you're going to finance the restoration of your new home. The bank may not lend you money to buy your fixer-upper until repairs are complete, but you can't actually do repairs until you've purchased the house. What a quandary!
If you want to avoid multiple--and often costly--loans, one program administered by the Federal Housing Administration (FHA) could help you buy and restore your dream home. The 203(k) program will allow you to get one mortgage loan, at a long-term fixed or adjustable rate, to both buy and restore your new historic home.
Here a breakdown of two of types of FHA-administered mortgages:
1. 203(k) Mortgage. If you need to renovate your home or make substantial repairs, you should apply for this loan. The amount of the loan is based on the projected value of the rehabbed property, after improvements.
Here are a few things to think about:
**There is a minimum $5,000 requirement for this portion of the loan (If you do not need major work done, get a Streamline 203(k), as noted below).
**Before purchasing a home, you and a real estate professional will need to determine the extent of the rehabilitation work that needs to be done and a rough estimate of what it will cost (no need for an appraisal at this point). More importantly, you'll need to determine what the expected market value of the property is after you complete the work.
**Don't sign a sales contract until you've applied for Section 203(k) financing. Your lender will get you started on the lengthy and complex loan process. Also, make sure there is a provision in the sales contract stating that the contract is contingent upon loan approval and your acceptance of other required improvements by HUD or the lender.
**Work must begin within 30 days after the loan agreement is executed and should be completed within six months.
**Repair funds held by the lender are released to you after an inspector certifies that the work has been completed.
**This mortgage also can be used to purchase a home that you plan on moving to another site.
2. The Streamline 203(k) Limited Repair Program. This is a newer version of the 203(k) program that is more appropriate if you need to make more "minor" repairs to your home. This program allows you to add up to $35,000 to your mortgage without as much paperwork or hassle as the regular 203(k) if you need to make improvements such as installing a new roof or flooring, purchasing new appliances or painting.
Here's a breakdown:
**Unlike the regular 203(k) program, you're not required to hire professional consultants, licensed engineers or architects.
**The work must be completed within six months
**Major renovation work is not covered
**To get a loan, contact an FHA-approved lender.
Note that 203(k) loans are funded by your lender and not the government, which only administers and insures the loans.
For more information, visit the US Department of Housing and Urban Development Web site.
As you look for historic homes for sale, remember there are many financing options available. Stay tuned to this blog for more stories on loans and grants.
For more ways to save big on your next historic home, check out Zip Realty, which gives you 20 percent of their commission when you buy a home.