East Brunswick Real Estate :: RE/MAX First Realty AgentCareC

Become an Expert on FHA's 203(k)

Posted on 11-11-2009

If you could, would you help your cash-strapped buyers (1) take advantage of pricing on well-priced properties that need some work, (2) finance necessary renovations and repairs (3) lump all costs into one manageable mortgage payment, and (4) make it all happen with a low down payment? If so, then you probably should learn everything you can about the FHA's 203(k) loan program.

RE/MAX International Chairman and Co-Founder Dave Liniger (CDPE, CRB) says every RE/MAX agent should know about it, because everybody benefits:

The buyers get a great deal, instant equity and an upgraded home.
The agent gets a sale that might not have happened otherwise, a commission and a potential referral source or repeat customer.
The neighbors get the benefits of having one less troubled, distressed property on the block.

"Because of their years of experience, RE/MAX Associates have traditionally worked with repeat customers, established move-up buyers and upper-end homes. But times have changed and the market has shifted," Liniger says. "Younger, first-time buyers account for an ever-growing portion of our business. And to them – as well as homeowners who might not have as much equity today as they did two years ago – a product such as 203(k) could make a significant difference on many levels. Our agents should be the ones explaining the 203(k) options and guiding buyers through the process."

Qualified buyers
Created by HUD in 1978, the 203(k) loan is available to any owner-occupant buyer and applicable to all single-family homes and dwellings with up to four units that are priced within the FHA's normal limits, which currently cap out at $729,750. Since 1996, there has been a moratorium on loans for investors who don't occupy the properties, but various groups are interested in seeing this reversed.

One scenario
Here's an example of how the loan program works under the current rules: A 203(k) could help a couple buy a $150,000 house that needs $25,000 worth of qualified repairs. An FHA-approved appraiser estimates the impact of the various improvements, and the buyers line up contractors and secure bids before finalizing the mortgage loan. Then they borrow the $175,000 (minus their 3.5-percent down payment), with the $25,000 put into escrow and paid out to the contractors completing the work. The repairs, which must be completed within six months of closing, raise the home's appraised value. The new owners now have a true equity stake in a property that's worth significantly more than $150,000.

The process

There are two types of loans: the traditional 203(k) loan, which applies to extensive renovation, including razing a property, and the Streamline 203(k) loan for properties needing less extensive repairs totaling no more than $35,000. Both loans, however, require a great deal of advance planning. Read more about the 203(k) process at www.hud.gov, and read the FAQs.

Once buyers find a property, you would help them work through the steps to closing:

Gauging the feasibility that the property will appraise at or above the total loan once the repairs and renovations are complete
Finding a lender that processes 203(k) loans
Collecting contractor bids and budgets that are required before the mortgage is finalized.

203(k) training
If you're interested in comprehensive 203(k) training, consider the 203(k) Specialist designation program created by Dennis and Teresa Walsh. The longtime real estate trainers whose Certified New Home Specialist (CNHS) designation has been offered through RE/MAX University for many years, have developed a system to teach agents how to create a competitive advantage through the 203(k) program.

The Walshs offer the designation through their innovative new company, RE-buildUSA (RE-buildUSA.com). It's based on a program that will help agents use the 203(k) to market themselves, connect with buyers and build business. It includes access to the four-hour, self-paced online 203(k) Specialist class, RE-buildUSA membership, and a comprehensive system of support materials and resources, including:

A searchable profile in the RE-buildUSA online database that helps buyers find you
The power of marketing coordinated by RE-buildUSA and Lowe's
Onestop shopping, guaranteed low pricing and contractor assistance from Lowe's
Access to a password-protected members-only area of the RE-buildUSA Web site, featuring access to downloadable forms and checklists to help you organize your business and much more.

Learn about all the benefits of RE-buildUSA membership and the 203(k) Specialist designation.

Valuable head start
RE/MAX agents have a head start in pre-registering and being among the first 1,000 registrants who'll save $100 on the price of the 203(k) Specialist course and a one-year RE-buildUSA membership, regularly priced $299. What's more, anyone who earns the designation and attends the 2010 RE/MAX International Convention in Orlando will receive a $100 gift card from Lowe's at the home improvement retailer's booth in the RE/MAX Convention Marketplace.

The designation course will be available in early November. The Walshs will unveil it to the rest of the industry at the NAR Convention, Nov. 13-16.