Fixer Upper Financing Conundrum

I’ve shown a lot of property to people who are looking for a ‘deal’ on homes for sale in Colorado Springs. The problem is, many of these ‘deals’ are not really eligible for regular FHA or VA financing. VA and FHA financing is how a lot of people are trying to buy real estate in Colorado Springs these days, because of the low down payment requirements. FHA and VA programs are owner occupied programs, so if you are an investor looking to do ‘fix and flips’, you can probably quit reading this now 🙂

  One of the problems with FHA and VA loans, is that they have some minimum standards the property has to meet in terms of physical condition. This protects both the borrower and the lender, as well as the Veterans Administration (VA) or the Department of Housing and Urban Development (HUD) against someone getting into a property that really isn’t habitable, and losing the house to foreclosure because they can’t put it right.

  There are circumstances however, where the buyer knows what they are getting into, but they don’t have the cash to do the fixes themselves. Moreover, the seller (often a bank, or an owner who  is ‘under water’ on the property) doesn’t want to fix it either. This is where the FHA 203k program comes in. This program is not for every situation, and does not help the VA buyer. But many of the affordable homes for sale in Colorado Springs that I have seen could be candidates. To be a good candidate for a 203k loan:

1. The repairs required have to be more than $5,000. If the amount is less than $5,000, they can actually be handled under a normal FHA loan, provided the lender you are working with will allow it (not all do).

2. The items have to be things that are not considered luxury items. You probably are not going to get approval for slab granite counter tops and high end plumbing or lighting fixtures. However, if the counter tops or floor are ruined, basic replacements can be fair game. Roofs, furnaces, siding and windows are all fair game if they have problems.

3. You have to have real bids for the work, so you can’t guess or ballpark the repairs. Even if you do the work yourself, the loan is done to account for a contractor doing it, and there are some aspects to the program that work like a construction loan.

4. The value has to be there. If you are buying a house too close to it’s ‘fixed up’ value, and you need to finance in a lot of expensive repairs, it can possibly become over improved and not appraise. You need to be ‘buying right’ to make this program work.

5. There are lots of little ins and outs to these programs. A good starting point to get more details is the HUD web site

Not every lender offers the 203k program. A couple of local lenders who are doing them are:

• Wells Fargo Bank, Jim Duvall, 303-840-6051 (tell him Annjie Williams from Professional Mortgage Associates) sent you
• Peoples Bank, Tammy Glick 719-265-1370. A note here, you should get pre-qualified with Sharon Walker at Peoples (719-548-5148) before getting Tammy involved. Tell her Rick Van Wieren sent you.

  If this approach sounds interesting, but you want to know more about what kind of property is available at what price points, give Rick a call at 719-590-4768 or email rick@ricksellscolorado.com .