How do you know if the older home you have your eye on is not going to be a big disappointment? Simple. Your Realtor will qualify the candidates in the older neighborhood so we’ll find the right home for you.
First, he’ll make sure that the money you’re going to invest in your project is supported by the neighborhood. Are the neighbors keeping up with their properties and with their landscaping? Have they added new windows, additions or garages? Is the neighborhood in a convenient location to shopping, major roads, hospitals, restaurants, movie theaters, and other services such as doctors, dentists, salons, etc? And lastly, is the neighborhood quiet, while still being 10 minutes away from everything?
Second, after he has identified your ideal property, he’ll prepare a purchase contract with the loan terms stating it will be a FHA 203K Renovation loan (either Streamline or Consultant). The clock starts ticking after the seller agrees to the terms and then you need to get with your contractor and/or the HUD consultant to finalize the estimate and the scope of the work. A knowledgeable inspection will minimize your risk. Where he will need help is through the renegotiation process so you set the fee for the renovation loan if you need to repair the roof, fix termite damage or update the HVAC system.
Third, he works with reputable and established contractors who provide specific documentation that they are specialized in plumbing, electrical, HVAC, carpentry work, etc. For a $25,000 Streamline FHA 203K loan, he would help facilitate the complete contract package so everyone would be properly and evenly reimbursed. For instance, he would pay the roofer $5,000 with a two-party check (out of $10,000) to get started, order materials and the same thing would happen for the GC/handyman carpenter/painter, who would receive $7,500 (out of $15,000). Within two to three weeks of closing, each contractor would receive their balance. Once all work is complete, the appraiser will then go back out to the property, and verify that the work was officially done according to the bid.
I suggest having a contingency of 10-20% of the contract fee, so your renovation loan would be $30,000, instead of maxing out at $35,000 as your upper limit for a Streamline FHA 203K loan. This contingency of $3-6,000 will help fix any safety, hazardous, mold, or termite issues. And if you come in under your repair price, you can reduce the time on the loan.
Sure there’s a lot of fear of the unknown when you want an older home, but with a good realtor as your guide, you can focus on your move and not on anything scary behind your walls.