Green Industry Articles

Using Streamlined 203(k) Loans to Market, Sell More Homes

How many times have you met potential buyers who liked a house but didn't buy it because they simply couldn't afford the upgrades to make it livable?

The FHA's Streamlined 203(k) loan may be just the financing tool to push those prospects off the fence. The loan allows buyers to finance both the home purchase and upgrades. Existing homeowners also can tap the loan to fund renovations.

Typically, buyers considering fixer-uppers find it challenging to get financing for the purchase and then get additional financing for rehab and upgrades. The Streamlined 203(k) eliminates those extra hoops--and costs--by rolling both into a single FHA loan.

Projects can include everything from new windows and doors to cosmetic upgrades, such as carpeting, paint and flooring.
 

Financing green upgrades

The especially interesting aspect of the loans for you is that green upgrades are covered in such loans. So that means if you're selling a property with inefficient appliances, drafty doors, or allergy-ridden old carpet, you can suggest the 203(k) loan as a solution.
Ginger Bell talks about a friend who's a real estate practitioner who used the strategy to sell a property that featured an outdated kitchen and that had been languishing on the market for six months. Bell is education specialist with Go2Training, Portland, Ore., and teaches mortgage professionals the ins and outs of the Streamlined 203(k) program.

Bell's friend picked up some slabs of sample granite countertops and placed them alongside information about the loan program in the kitchen.

It gave her a chance to deal with the dated kitchen head-on and provide prospective buyers a realistic solution for a renovation.
It worked. The real estate practitioner fielded three offers after the next open house she held.
 

What's covered?

Among the properties that qualify are owner-occupied single-family properties, townhouses, the residential portion of mixed-use buildings, and FHA-approved condos. Repair costs need to be at least $5,000 and no more than $35,000.

Improvements that can be done include:

• Repair or replacement of decks, patios and porches, roofs, gutters and downspouts
• Elimination of health and safety hazards
• Repair or replacement of plumbing, heating air conditioning and electrical systems
• Weatherization and energy conservation improvements, including windows and doors, weather stripping
• Appliances
• Exterior and interior painting
• Flooring, tiling and carpeting
• Accessibility improvements for people with disabilities

The loan features a unique process (see http://rehabloannetwork.com/how-does-a-203k-loanwork/) for appraisals, inspections, bids, payment to contractors, and so forth. It's why Bell emphasizes that real estate practitioners need to really understand the program and its wrinkles before advising clients. In addition, a loan officer who has expertise in the loan is best equipped to ferry people through the process.
 

Boost to the industry

Bell views the 203(k) loan as a powerful tool that can help the real estate industry rebound and that can help real estate practitioners move property. " Lot of consumers just don't know that this program out there," she comments. For the industry as a whole she points out that such loans could help real estate practitioners to move distressed properties, such as short sales and
foreclosures, that need upgrades and repairs.

"It's a way to really kick start our housing market," she adds.

Resources:

U.S. Department of Housing and Urban Development
Rehab Loan Network

Source: Green REsource Council Newsletter, November 2011