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the “fixer upper loan” by some, the 203(k)
mortgage is a special mortgage
that is available to buyers of homes that need work
in order to become habitable."
Is the 203(k) Mortgage?
Though many prospective homeowners
are familiar with the way that straightforward mortgages work,
very few are aware of a slightly different kind of mortgage
that is available to some homes. Deemed the “fixer upper
loan” by some, the 203(k) mortgage is a special mortgage
that is available to buyers of homes that need work in order
to become habitable.
Many homeowners who would desire a home that needs a great deal
of work - either to the general structure of the home, its location,
or its placement on a particular plot of land - avoid the purchase
because they don’t have the funds to purchase the home
plus fix it up. The 203(k) mortgage offers a solution to this
problem by loaning the buyer the funds it will take to fix up
the home while also allowing them to purchase the home.
The mortgage is determined by calculating the price of what
the home will be worth once the updates and repairs are made,
rather than relying on the listing price. Some consider it risky
business because it means taking on a mortgage that is worth
more than the house is in its present form. However, for the
dedicated home buyer who is going to make the necessary changes,
the 203(k) mortgage can be a great opportunity.
The 203(k) mortgage was established in the 1970’s when
the federal government was looking for a way to rehabilitate
distressed neighborhoods. Today, the loans are given by private
lenders but are insured by the Federal Housing Administration.
In addition to being a tool in fixing up a home that is a new
purchase for an individual, 203(k) mortgages can also be used
to repair or update an individual’s current residence.
Updates such as new windows or a new roof could qualify for
a 203(k) financing. The minimum loan amount available under
203(k) mortgages is $5000.
The way the 203(k) loan works is similar in process to the way
a construction loan works. Essentially, the loan is placed in
escrow for a contractor. As the contractor completes the necessary
work, he or she is paid through the escrow account. The types
of repairs that are necessary and are funded by a 203(k) mortgage
are determined by an appraiser, who identifies the needs of
the home in order to be habitable and in order to increase the
value of the home.
Many individuals - and even many real estate agents - are not
aware that 203(k) loans are available. It’s important
for would-be home buyers to realize that these types of loans
exist, as their existence brings about a great deal of potential
opportunity for home buyers. Even if a home is not in the shape
it would need to be for an individual to move into it, the house
is not necessarily totally out of the question. This is great
news for decaying cities that are in need of upgrades and renovation
but do not have developers who are willing to come in and do
the necessary work.
RE/MAX of Tenafly
Associates lead agents
competing companies in
specialized training and
They dominate the Accredited Buyer Representative (ABR), Certified Relocation
Professional (CRP), Certified Residential Specialist (CRS) and Leadership Training
Graduate (LTG) ranks. Read
About Orly Chen
Chen is a leading
Tenafly real estate agent
in Northern New Jersey
specializing in the Bergen
County area. Her
integrity make Orly
one of the most sought-
after agents in the
Northern New Jersey
real estate market