The FHA Rehabilitation Loan
Typically Called a 203(k) FHA Loan
An invaluable tool for dealing with the REO issues faced communities across the country are currently facing. The way the program works is it provides the buyer with a loan to buy a property and then rehabilitate it using a single loan. In essence, the buyer is borrowing more money than the amount of the purchase price which is based upon an agreement that specified improvements are going to be made which will increase the the property value.
For instance, an investor buys a house for a $100,000 purchase price and in turn agrees to generate $40,000 worth of improvements to the property. They obtain a 203(k) FHA loan of $135,000 and expend the additional monies to make the specified improvements that are going to intensify the worth of the house. While there are several of other requirements, you get the basic concept, and this program has been successfully used across the nation in the past. The problem here is that
HUD is not all that unenthusiastic about reinstating this program for investors.
During the late part of the 1990s, the 203(k) program was put on hold for loans to investors due to a scandal that happened within New York City, subsequently it has never reinstated. However, the time has come for FHA to reinstate the 203(k) back for investors. There have been immense improvements in technology along with the ability to monitor and track these loans. Although more import, it's a tool that's already been tested and used for helping communities take care of rundown properties one at a time.
During the past few years, it's become increasingly clear that
no "silver bullet" exists to deal with the crisis in housing, yet many continue to search. The latest concept the Federal Reserve has presented is a complex suggestion that the REOs should essentially be sold in bulk allowing them to be used as rentals on a theory that it would be a help in addressing a rental housing shortage. However, there are endless shortcomings to this proposition. For starters, every market is unique, so simply identifying a bunch of properties within a market does not mean any bulk sale would bestow a sufficient return or even rally the requirements of that particular market. Secondly, each property is also unique. One property which might be a suitable rental and another property might be better sold. Thirdly, how can one price a bulk sale to assure any demand by investors through a predicted return?
An alternative answer is concentrating less on things that can be accomplished by big government and more so on what local communities and individuals can do to meet the struggles within their very own neighborhoods. They are truly in best position in making this decision. Together with other locally concentrated efforts and re-instating reasonable credit standards, bringing back the 203(k) FHA loan for use with investors can offer a powerful tool for addressing problem housing just one home and in one neighborhood at a time.
Let's say the local investor happens to be contractor whose crews are out of work over the shortage of new home construction work could obtain a 203(k) FHA loan to buy one or two run down properties in a particular neighborhood and bring it back it to the customary standards of other neighborhood homes. It might then be resold for a price congruent with the other neighborhood homes returning an acceptable profit. The bottom line would be an enhanced property, improved neighborhood values, jobs for the crew of contractor and other ancillary companies, and
one or more less homes existing in the REO inventory, all without involving any taxpayer expenses.
The 203(k) FHA loan provides the capital which is otherwise unavailable; local citizens in their own communities supply the balance. At the start of the housing market and mortgage loan crisis, it was presumed reasonable to try for quick fixes. At this point in the game, the time has come to tackle the numerous little ways we can to allow people to stay in their houses and come up with alternatives to foreclosure and tools for working with those properties we have not been able to keep from the foreclosure auction. 203(k) FHA for investors would return the tool belt allowing us to put those properties back together and get people back working.
Feb 14, 2012
Real Estate Financing Books