First time homebuyer and FHA 203k loan?

As a first time homebuyer should I pursue this property that requires FHA 203k financing? It is a foreclosure - I haven't seen the house yet (going to see it this afternoon) but it is being sold 'as is' so I know it needs some work. We are on a strict budget - we absolutely can't afford payments on a mortgage any higher than $140k. The listing price is $119,900 so as long as the improvements do not go over $20k we are ok. The assessed value of the home is $142k. Is this a lot to be getting into for a first time home buyer?

Update:

Also, we can't do a property inspection because the utilities are turned off and the utilities will not be turned on until an offer is made so we are walking into this blind. I am taking my dad along to see it today because he will know more about repairs than I do.

9 Answers

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  • 10 years ago
    Best Answer

    20k isn't going to go very far, the repairs would have to be extremely minor. Have a contractor give you an estimate before you commit. I have a feeling you have no idea what materials, labor and permits costs.

  • Anonymous
    5 years ago

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    RE First time homebuyer and FHA 203k loan?

    As a first time homebuyer should I pursue this property that requires FHA 203k financing? It is a foreclosure - I haven't seen the house yet (going to see it this afternoon) but it is being sold 'as is' so I know it needs some work. We are on a strict budget - we absolutely can't afford payments on a mortgage any higher than $140k. The listing price is $119,900 so as long as the improvements do not go over $20k we are ok. The assessed value of the home is $142k. Is this a lot to be getting into for a first time home buyer?

  • 10 years ago

    There are two types of 203k FHA loans. The first is a streamline 203k and is for repairs from $5000 to $30,000 which is where this property would probably fall. The second is where the repairs are over $30,000. If the first type you can use a contractors estimated cost of repairing the needed items to ensure that the property is brought up to meet minimum standards. The contractor will also include a 10% buffer for any items that may occur or surface during the rehabilitation. If the house is old, the lender will require another 5% buffer, due to older properties require more work and when fixing some items it may actually lead to having to do something that was not anticipated originally. The lender will use a plan reviewer to review the contractors bid as it must be at retail costs, as to protect the lender if the contractor were to quit or the borrower were to fire them, due to lack of progress, as work must not cease for thirty days at any time. A hold back of ten percent per contractor draw is done, to further ensure that work is completed satisfactorily and the lender will use a 203k inspector to approve each draw, and generally there aren't but five draws, but on much larger projects there could be more.Qualifying for the loan is the same, and the repair cost are added in to obtain the total acquisition cost, and the borrower's down payment is based on that along with any financed closing costs. It is a great program because you don't have to get a bridge loan or a home improvement loan, as this loan is both rolled into one. Not all lenders do this type of loan as it requires additional staffing and it can only be sold on the secondary market to a few investors or on a GNMA two pooling program therefore the interest rate or total APR will be a little higher than a non 203k loan. It is the only way to go when buying a house in as is condition at a lower than market price, as FHA will base the value on the after improved value, not the price you are paying to the seller. In some cases the repairs may exceed what the market value will support and the buyer would have to pay the difference, and any work done by the buyer cannot be funded from the reserves established by the lender and contractor. Typically the buyers will do some of the cosmetic work as FHA doesn't require cosmetic work as a rule to meet their minimum property standards. I could write a book on this but will stop at this point as you probably have a general idea of how to proceed. Good Luck,

    Source(s): FHA/HUD approved plan reviewer, consultant, and inspector for the 203k program.
  • 10 years ago

    I am a recent first time home-buyer and i can tell you that there are a few changes going on in the next 10 days of HUD... but first I will start with your statement, "Also, we can't do a property inspection because the utilities are turned off and the utilities will not be turned on until an offer is made so we are walking into this blind" you can still have a property inspection done, and true it will not include everything however my inspector brought a generator and was able to check the electricity and was able to do a pretty detailed inspection of the plugs and the electrical box to give me a better idea of what i was walking into. So i would still highly recommend having an inspection done if you are seriously thinking about purchasing the house because you can't return a house when it's broken. Lastly if you are indeed purchasing this home through HUD the incentive to get the $100 down and the $2500 credit towards closing cost it needs to be purchased before February 12, 2010.

    Good luck....

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  • 10 years ago

    Buying a home is a very important decision which needs time to think over and a lot of calculations done before finalizing a home. There are so many things to consider before you can actually pay for a home that you have liked. First there is the huge task of combing through all the homes possible for you to see and then arranging for mortgage. Once you have decided on which home you want to buy, you would want to look for a reliable realtor.

    http://www.worldbestloans.com/

    Your realtor will guide you through the steps of buying a home and all the necessary paper works and also contact with the mortgage lender. You may prepare a budget and see where your money is going. Accordingly you can settle on the amount to be set aside for your mortgage. This is the best way to find out how much mortgage you can afford. You would not want to buy a house that you cannot afford.

  • glenn
    Lv 7
    10 years ago

    Remember that the assessed value is usually a tax district estimate that has no connection with real world market value. It is done using a mass valuation computer program and they don't look at the inside or outside of the house or any of the comparable sales.

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    3 years ago

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  • 10 years ago

    many repairs are cosmetic and not structural at all. Just make sure you have an inspector look at it before you make an offer if the seller is HUD as you can loose your deposit with HUD if it has major problems that you cannot fix with little money

  • 4 years ago

    The price of the home. Amount of mortgage is irrelevant.

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