Have you considered 203(k) loans for rehab properties?

These days the real estate market is flooded with bank owned foreclosure (a.k.a. REO) and pre-foreclosure properties (a.k.a. short sale listings).  Many potential home buyers are looking for deals and often consider buying a property that needs work prior to moving in.  The challenge is that conventional mortgage financing rules often limit these activities because a property might not qualify for conventional financing depending on the condition.  Many home buyers, especially first time home buyers may not have the cash to rehab a home after closing.  Also, depending on the buyer’s initial down payment at closing, there probably will not be enough equity in the property for home equity loans to be a good option for financing the rehab activities.

If you are in this situation, HUD’s 203(k) loan program may be a good option for you to consider.  The program offers financing options similar to a new construction “bridge” loan which may allow a home buyer to purchase a home, rehab the home in a reasonable amount of time, and then convert the mortgage to a longer term loan.

Be forewarned that rehab properties are not for the faint of heart, so be sure you know what you are getting yourself into before pursing one of these homes.  However, with proper planning and a some work you could potentially finance your dream home in a great area that you may otherwise not be able to afford by taking advantage of the 203(k) program.  The HUD website provides a search tool to generate a list of 203(k) lenders by state so contact one of them if you would like additional information on the program.

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