We recently had a property that was a complete fixer-upper. This property had about five or six cash offers, and a couple of people who were owner-occupied that wanted to buy it.
This property needed so much work. There were broken windows, graffiti, holes in the wall, and a number of other problems. Under normal circumstances, this kind of property would only be available to cash buyers.
However, there is a great loan product called the FHA 203(k) loan, which is basically a renovation loan that allows a first-time homebuyer to make an offer on a fixer-upper property. They finance all of the renovations so that you can fix the property according to your taste. You get to pick the contractor.
The FHA 203(k) loan is a great opportunity for first-time homebuyers.
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In this case, the first-time buyer used the FHA 203(k) loan and offered the seller more money than the highest cash offer. Let’s say that the highest cash offer was $200,000; the first-time homebuyer ended up offering $10,000 or $15,000 more, which caused the seller to accept their offer.
This was a great opportunity for the buyer. Now the buyer has a property they were able to purchase at a low market value, and they get to fix up the property to their own tastes. The lender lets them borrow $40,000 to renovate the property, and the buyer gets to pick all of their upgrades.
Even after the buyer paid a bit more and invested $40,000 to fix it up, they will still have equity in the property.
If you or someone you know is interested in buying a fixer-upper property, make sure you ask your loan officer about the FHA 203(k) loan. If you have any other questions about buying a home, just give me a call or send me an email. I would be happy to help you!
