Recognizing 203k benefits

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What is it about the HUD Section 203(k) Rehabilitation Loan program, commonly 203k, that causes home buyers to shy away from this program as a practical and cost-effective method of financing their purchases? I have had many conversations on the subject of 203k mortgages and at least twenty percent of folks I spoke with didn't want to "go through the process" of a 203k loan.

I often wondered, could it be that they are unaware of the program? Or not as familiar with it as they would like to be? Could it be that they have been dissuaded by others out of fear that it may be too complex and could cause unnecessary delays? Some real estate brokers believe that delays can lead to the loss of income, which is a well-founded argument, but knowledge of the program could easily dispel that notion. Whatever the reason for this stated reluctance to finance home purchases with the 203k, maybe if we take a closer look at the program we may be able to allay some of those concerns.

First, let's discuss what the program is and what it is designed to do. In order to do this we'll have to briefly outline what is entailed in a regular 203b or conventional mortgage. Normally, the mortgage application process consists of four basic stages: Loan Origination, Loan Processing, Loan Underwriting, and Loan Closing. During this process, borrowers are asked to meet specific, documented requirements relating to income, assets and credit. This information is combined with property data such as the property type, value, and title search in order to complete an loan package which can be approved.

The 203k mortgage entails all the stages above with one addition. The borrower is asked to provide to the lender, a work estimate prepared by a licensed and insured contractor that must meet HUD's minimum repair cost $5,000 for the to be completed on the property. These repairs are usually made at the borrower's request and then documented in a work write-up prepared by a HUD-approved 203k consultant, which is required by HUD/FHA and is necessary to keep repair costs in line with HUD's fair market prices.

The question therefore, is how much time is added to the processing of a 203k mortgage application because of the repair cost stage that is incorporated into the process? How much more complex has the process become? Will more home buyers elect to use the program for their purchases if they become more familiar with the program? Will they allow themselves to be dissuaded after they learn about how the program can benefit them in the short term? And the long term? Let's look at what the program accomplishes.

There is a full list of repairs outlined on the HUD website so I won't go into the repair specifics here, but I can point out that the $5,000 minimum repair cost required for a property to qualify for a 203k rehabilitation loan, can be used to close air infiltration areas in the home and prevent the loss of heat during the winter and cool air during the summer. In either case those types of repairs can make a significant difference in the dollars coming out of a homeowner's pockets to pay for energy costs. What if the property is in need of new plumbing, or electrical upgrades? The 203k will allow payment for those repairs. Most repairs that a property may need are financed in the 203k mortgage.

Of important significance are the benefits home buyers will derive from using the 203k mortgage program to finance their home purchases. They include not having to pay for expensive repairs in one lump sum; out of their own pockets during the first year of home ownership; and if the cost of repair to major working components of the home are financed during the purchase, perhaps the new home owner wouldn't need to worry about any repair expense for years after closing.

So, if you are in search of a home and you're considering financing options, you could save this article to be used as a reminder that there is a lot to be gained and very little to lose by choosing the 203k mortgage to finance your home purchase. A little additional time taken to get the job done right, which in turn works to your benefit can hardly be considered as losing anything. After all, home ownership meant to be a pleasant and enjoyable experience, is it not?

For more about 203k, please visit the HUD website. To find out if you qualify for 203k financing, visit a HUD-approved lender at http://www.unitednorthern.com/New_20_Jersey.html and send inquiries to Tony Phillips. For additional 203k mortgage sources and relevant information, please visit the recently launched B.K.HECM Home Loan search.