Written by Sheetal Sawhney, CrossCountry Mortgage
Your client walks up to the front door of the home they think is the one. They’ve scoured every listing website they could find for photos of the house. There weren’t that many photos, but the description sounded perfect, so they couldn’t be more excited to see it in person! They turn the knob, push open the front door, and begin to walk from room to room. There’s the first-floor powder room! They’ve always wanted this feature in their future home. Except, the sink doesn't work. They walk over to the kitchen and immediately head to the island in the center of the room. They begin to imagine all the fancy dinners they’d cook, but the daydream gets put on hold when they notice that the counter top is cracked, scratched, and stained. They look to the left and notice the cabinets completely clash with the flooring. They decide to head upstairs. Is that blue shag carpeting? They begin to wonder if this is really the home for them.
How many times have you heard these types of concerns from your clients? This scenario is all too real for homebuyers, and many times, it’s the cause for many to move on and not make an offer on what could be their perfect home. The thought of closing on a home and then applying for a separate renovation loan may be enough to make someone give up before even trying. According to the 2016 Houzz & Home Survey, in 2015, first-time homebuyers spent $33,800 on home renovations, and homeowners on a whole spent an average of $60,400. Can you imagine taking out an additional loan or using a credit card for that amount?
What if they didn’t have to use a secondary form of financing? What if they could qualify for purchase and renovation financing all at once and have only one monthly payment. Meet the FHA 203(k) loan.
There are two types of FHA 203(k) loans, FHA 203(k) Limited and FHA 203(k) Standard. Both are a fixed-rate mortgage with a term of 30 years. FHA 203(k) Limited offers financing up to $35,000 for minor repairs (no minimum required). Minor, non-structural repairs include gutters, HVAC, plumbing, electrical, carpet, paint, appliances, accessibility, septic systems, etc. FHA 203(k) Standard offers a minimum (no maximum) of $5,000 in repairs (appraisal required). Larger structural repairs include chimneys, attached garages, bathroom/kitchen updates, safety improvements, grading, etc.
Besides the benefit of this loan offering a more affordable solution to finance repairs and improvements than other methods like home equity lines of credit, credit cards, or personal loans, there are many other pros for your clients to consider. The interest they pay on their mortgage may be tax deductible (they should consult a tax advisor). Also, the repair work won’t stretch out over months or years. Lastly, while customizing the home to meet their needs, they’re most likely increasing the home’s value and resale marketability.
So, don’t let your clients walk away from a great home just because of some blue shag carpet. Consider recommending an FHA 203(k) loan to them. You’ll be doing your part to get them into the home of their dreams.