This article was just run about a client of ours in Pennsylvania. The client was closed by one of our branches- The Mortgage Company . Just another example of the power FHA 203k renovation mortgages and how working with an experienced team can make the process easier than what you read on the internet.
Billy and Jessica Shields sit near the fireplace in their Schnecksville… (Harry Fisher, THE MORNING…)
December 29, 2013 | By Jennifer Sheehan, Of The Morning Call
Looking around online while waiting for a flight to Florida, Billy and Jessica Shields came across a two-story Colonial for sale in scenic Schnecksville.
The 13-year-old home had been vacant for two years after it was foreclosed upon, but that didn’t scare the Shieldses away. They bought their last home as a foreclosure. So they put in a bid for the Schnecksville house and went to Florida, never having seen the inside of it in person.
While away, they learned their bid was accepted. And after they returned from Florida, they finally got inside the home. At first glance, the damage was nothing surprising for a home that had been vacant.
Until they went into the basement.
Black soot caked the basement floor and walls from a malfunctioning furnace. All the air ducts were filled with soot. Water pipes had been ripped out by vandals.
They realized there was major – and costly – damage.
No mortgage company would give them a loan because the home would never pass an inspection. ( Until they reached out to The Mortgage Company in Allentown, PA- a branch of AnnieMac Home Mortgage.) “We knew we were in trouble,” Billy Shields said.
But the Shields’s saw something special in the four-bedroom home on Cider Press Road. And after some research and perseverance, they came across a unique loan program through the Federal Housing Administration that allowed them to buy the property and fund the needed repairs.
They secured an FHA 203K loan. The Federal Housing Administration started the loan program in the 1970s as a way to rehabilitate and repair single-family properties.
“It is the best-kept secret in the mortgage loan industry,” said Jeff Onofrio, director of renovation lending for AnnieMac Home Mortgage, Mount Laurel, N.J. “What we find is that a lot of times we will talk to a client and they will say, ‘Why didn’t someone tell us about this?”
In most cases, lenders grant mortgages based on a property’s current value. If a home needs major repairs, the borrower will also have to obtain another loan to fund that work.
Through a 203K, both the repairs and the mortgage are wrapped into one loan with a long-term fixed or adjustable rate. The mortgage is based on the projected value of the property once the repairs and restoration are completed.
The rates for this type of loan are usually a quarter or half a percentage point higher than a conventional mortgage and there are some added fees. Borrowers also need to have at least a 640 credit score to qualify.
The program comes with more fees than traditional mortgages. Onofrio said those fees can add 1 percent to 2 percent to the cost, depending on the size of the project. And closing on the loan often takes longer than with a traditional mortgage. Onofrio said transactions through the program typically take about 45 days.
One reason the loans cost more is that the restoration work is guided by a HUD 203K consultant. When the loan process begins, the consultant does an initial inspection of the property to determine what work is necessary, then lists three levels of work to be completed:
The consultant inspects the property periodically throughout the restoration work and before the contractor doing the project receives any pay.
“The consultant made it an easy process,” Billy Shields said. A lot of work needed to be done to the Shields’s home. The basement, the central location for all the home’s major systems, was a horror show.
Among the issues: The well pump was broken, the water heater damaged, the water pipes ripped out, the air conditioning system nonfunctional, the furnace wrecked and air ducts were filled with soot. And there were mold and mice problems.
“It was in a lot worse shape than we thought,” Billy Shields said. But structurally it was a sound house with a solid roof and no major property issues. The work took about three months. Billy, a handy guy, did the demolition work himself, saving the couple time and thousands of dollars. Looking at the bottom line for the house: The home has four bedrooms, 21/2 bathrooms and an in-ground pool on about 2 acres. They paid $220,000 for the home and spent $75,000 on the repairs and rehab.
The final appraisal was for $320,000, meaning the couple made an immediate $20,000 profit. The Shields’s moved into the house in August. You’d never know this tastefully decorated home – with dark maple floors and warm neutral paint – had sat abandoned for two years. The basement smells clean and is devoid of any traces of soot or damage. The Shields’s are thinking of putting a pool table and a gym down there.
“When you look at these properties you have to look beyond the problems and use your imagination,” Jessica Shields said.
The FHA 203K program can be used in several scenarios:
To purchase a home and rehabilitate it.
To purchase a home , move it onto a new foundation on the mortgaged property and rehabilitate it.
To refinance existing liens secured against the property and rehabilitate the home.
To find out more about 203K loans, http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/203kabou.
Source: The U.S. Department of Housing and Urban Development
The Renovation Lending Division of AnnieMac Home Mortgage is a specialized group of professionals focused on the need to help rebuild and renovate American homes. Americans currently have a great need to access affordable loans to simultaneously finance and renovate their homes.
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