The Honest Broker: Buyers have an option for homeownership in wake of economy

The Honest Broker: Buyers have an option for homeownership in wake of economy



The latest 30-year fixed-rate average is 7.92%, affecting the amount that buyers can qualify for a home mortgage loan. The reduction in the amount they now can borrow is opening an option for them to entertain a less than “move-in ready” home, one that may need a bit of TLC, and HUD’s 203(k) program can help them include upgrade costs in their first mortgage. By switching strategies, buyers are considering homes that need work and will not have to come up with more money for extensive repairs or take out a second loan and consider financing both the purchase and renovations with a single home loan through the 203(k) program offered by the U.S. Department of Housing and Urban Development, a program that can allow the average home buyer to rehabilitate a property.

Mortgages that combine money to buy a home with money to fix it up, including loans offered through Fannie Mae and Freddie Mac, are one option for these buyers, depending on the property, extent of work needed, and buyers’ financials. These types of loans still make up only a fraction of mortgages, and more interested borrowers and agents doesn’t necessarily mean more renovation loans. HUD is trying to get more people to use its program and has been collecting feedback from lenders and consumers.

Some reasons these loans are attractive:
  • They can make renovations affordable for buyers who have difficulty with their down payment and closing costs and don’t have more money to spend.
  • They present an option when sellers don’t want to make repairs.
  • They make a purchase possible when lenders won’t originate a standard mortgage because of the poor condition of a home.
  • They add guidance and protection for buyers and can make the renovation process easier.
  • They can give buyers immediate equity in their homes.
Some reasons these loans aren’t more widely used:
  • They require buyers and sellers who are willing to risk waiting a couple extra months to close a deal.
  • Buyers must be willing to pay higher interest rates and deal with the added stress of renovations.
  • Lenders must be willing to take on added risk.
  • The success of the process depends on the availability and reliability of contractors.

In the competitive housing market of the last few years, buyers who wanted to use these types of loans had a hard time getting their offers accepted. “As the market has started to cool a little bit over the last six months or so, you’re seeing more interest,” he said. “And sellers and Realtors that are more willing.” The loans work best when homes need major work, and ideal properties are those owned by banks or sold through estate sales.

Buyers should consult with their mortgage broker on this type of loan to see if it is feasible in their situation. Now is a great time for homebuyers to look at these rehabilitation loans, since homes in general are less affordable to the average buyer, and “the less expensive the home, the more it needs repairs.”

Hud’s 203(c) program can help the struggling home buyer in today’s economy get into a home if they think ahead, make a plan with their mortgage broker and realtor to search for homes that qualify. Perhaps it will mean that they be willing to put off the immediate gratification of a move-in ready home, but just might be the only way they can get into an affordable home.

Be Well




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  • Posted 8 months ago

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