Benefits Of Buying Foreclosure Or Fixer Upper With FHA 203k Loan

Benefits Of Buying Foreclosure Or Fixer Upper With FHA 203k Loan

This BLOG On Benefits Of Buying Foreclosure Or Fixer Upper With FHA 203k Loan Was UPDATED On December 31St, 2017

Due to the real estate and credit meltdown of 2008, foreclosure rates have skyrocketed to historical levels.

  • Mortgage lenders do not want to be landlords and do not want to hold any properties on their inventory
  • Mortgage lenders throughout the country had more real estate owned, REO, properties on their books and were eager to unload their inventory
  • Unfortunately, many foreclosures were listed at or above market prices in many parts of the country and mortgage lenders needed to readjust their values
  • There are many benefits of buying foreclosure or fixer upper
  • Single benefit is getting the property below market prices
  • Many home buyers and property investors got on the foreclosure buying bandwagon looking for deals

Disadvantages Of Buying Foreclosure

There are many disadvantages in buying foreclosure as well.

  • Most mortgage lenders who list their foreclosures, they sell them as is
  • Many foreclosed properties will not qualify for a regular mortgage if the home is not habitable
  • Many foreclosures are in need of repairs and most first time home buyers are limited with reserves
  • Besides coming up with the down payment, they need to come up with money for the repairs which cannot be financed unless they apply for a FHA 203k Rehab Loans which means a higher interest rate and more paperwork
  • Some foreclosures require tons of work
  • Buyer of a foreclosure needs to really think about the acquisition costs as well as the renovation costs

Benefits Of Buying Foreclosure With FHA 203k Loans

Benefits of buying foreclosure with FHA 203k Loans is that buyers can do a total gut rehab on the home with an acquisition and construction loan with 3.5% down payment on the after improved value.

  • For example, if the home is priced at $100,000 and the cost of renovation is another $100,000, as long as the after improved value is $200,000, the lender will require 3.5% of the $200,000 or $7,000 for the down payment
  • Most home buyers do not have to worry about closing costs
  • Closing costs can be covered with either a sellers concession and/or lender credit
  • Home Buyer can customize the home to their standards. Its like building their own custom home with choice of materials

Appraisal Issues On Foreclosures

Another issue home buyers of foreclosed properties face is appraisal issues

  • FHA appraisals specific require that the home is in habitable condition and it is safe and secure and that all electrical, plumbing, and HVAC is in working order
  • Many foreclosures are not in the best condition and may disqualify home buyers who are getting a loan and need an appraisal done
  • Conventional loan appraisals are pretty much the same and the conventional mortgage loan lender will not secure a mortgage loan if the home has kitchen cabinets missing

Again, buying foreclosure can be done with FHA 203k Rehab Loans.

Flipping Homes: Making Money Buying Foreclosures And Flipping For Quick Profit

There are hundreds, if not thousands, of informercials or books about getting rich quick by flipping foreclosures with no experience needed.

  • As a real estate investor for the past 20 years with experience in owning and managing 3,000 residential units, it is not that easy
  • Many folks feel that the term foreclosure is equivalent with bargain basement prices
  • Not always the case
  • Many foreclosures can be purchased below market value but the majority of the foreclosures are at market prices or only slightly below market prices
  • For those who buy foreclosure at super cheap prices may need to spend a lot of money renovating the property to make it marketable
  • The bottom line, nothing is for free
  • Yes, real estate investors can make money flipping foreclosed properties
  • Investors need to be extremely careful at acquisition and rehab costs and the comparable sales

Foreclosures Are Sold As Is: Get Property Inspection

Almost all foreclosures are sold in an as is condition and mortgage lenders do not want to get involved in any repairs nor allow the buyers to do any repairs prior to closing.

  • Minor items light a burnt out light bulb or leaky toilet will not make or break a home buyer but major foundation or structural issues will
  • I strongly recommend that you hire a professional property home inspector to fully inspect all aspects of the property

Qualifying For FHA 203k Loans With Direct Lender With No Overlays

The Gustan Cho Team at USA Mortgage are direct lenders with no lender overlays on FHA 203k Loans. We do not have any overlays on FHA 203k Loans.

Here are the requirements of qualifying for FHA 203k Loans:

  • As long as borrowers meet HUD Guidelines on FHA Loans, they can qualify for FHA 203k Loans
  • 580 credit scores for 3.5% down payment on acquisition and construction FHA 203k Loans
  • The Gustan Cho Team at USA Mortgage offers both FHA 203k Streamline and FHA 203k Standard Loans
  • Need approve/eligible per Automated Underwriting System Approval
  • Outstanding collections and charge off accounts do not have to paid off

Buyers of fixer uppers who need to qualify for FHA 203k Rehab Loans can contact us at The Gustan Cho Team at Loan Cabin at 262-716-8151 or email us at We are available 7 days a week, evenings, weekends, and holidays.

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