FHA's 203(k) program offers lending options for properties in need of repair

Cassy Humberger, branch manager, Inlanta Mortgage

As published in Scotsman Guide's Residential Edition, March 2010.

Homebuyers could be wondering about how to borrow funds for property purchase and rehabilitation simultaneously. Especially with more real estate owned properties (REOs) coming on the market, and with these and similar properties needing repairs, these potential borrowers seek strong financing options.

Mortgage brokers who master the Federal Housing Administration's (FHA's) section No. 203(k) program could provide an option for these clients.

* * *

FHA's 203(k) program is designed to help finance properties that need updating, rehabilitation or expansion. It can be complex and time-consuming for mortgage brokers. But it can pay off.

Brokers who hope to work with the program, which offers mortgage insurance to FHA-approved lenders, must coordinate with an array of building and real estate professionals and deftly manage a multitude of paperwork. They also must understand when a standard 203(k) and Streamline (or Streamlined) 203(k) are necessary and how.

Brokers who help borrowers set appropriate expectations and follow a professional and predetermined process can increase their success and develop a lending niche that continues to grow in need.

Some of the keys to success include:

• Strong upfront preparation;
• A vision for how the loan puzzle will look upon completion, which means being well-grounded in all aspects of the program; and
• Effective time management to benefit the borrower and the lender with an efficient process that won't waste time.

Key program facts

Picture a 203(k) loan as a jigsaw puzzle. Your responsibility as a mortgage broker is to oversee its completion, and experience can be vital to understanding when specific puzzle pieces must fall into place.

The first step is to be up-to-date on FHA guidelines. The borrower's property loan must meet FHA rules before you consider the 203(k) element. These rules include new regulations such as stricter standards and documentation requirements for the FHA streamline refinance program and the prohibition of brokers ordering appraisals for FHA loans.

Other FHA changes also are in the works, and brokers working with FHA loan programs must remain attentive to all developments (see sidebar).

Page: 1 2 3 Next