How To By A Run-Down Home w/a Mortgage
Q: I want to buy a home. Given where home prices are now, I figure I can get more value by buying a home that is in poor condition and needs work. Is there a way to buy a home like that with a mortgage? Steve, Essex Fells, NJ
A: Rather than paying high interest rates for an interim loan with short repayment terms and perhaps a big looming balloon payment due on the horizon, HUD Section 203(k) allows homebuyers to buy a house that needs repair or upgrading. Consumer construction loans like 203(k) offer a solution that insures buyers a single, long term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a home at a lower interest rate that is amortized over the life of a traditional mortgage loan period (i.e. 30 years). 203(k) loans also protect lenders by allowing them to have the mortgage loan insured even before the condition and value of the property may offer adequate security. There are risks however when you buy a home via 203(k), particularly for people who have never dealt with contractors. The risk tends to increase based on how much work needs to be done to the home. Whenever you deal with a contractor, you should require a detailed written scope of work and payment schedule and remember that whatever money you borrow to buy your home, you must eventually pay back. Thanks for your question, Steve. Good luck.
For more real estate tips and information visit my blog at geraldlucas.com.