Many HUD and REO properties will need more than $5,000 in repairs and many times banks will be unwilling to lend money until the repairs are completed. However, for persons who want to buy that house and live in it as an owner-occupant FHA OFFERS THE 203k REHAB LOAN.

For those who want a very well conditioned house but cannot afford the cost of the repairs, this is an EXCELLENT CHOICE of loan!

The downpayment requirement for the owner-occupant is approximately 3% of the purchase price and the added repairs. For example, if you purchase at $90,000 and need $10,000 in repairs, the downpayment would be approximately 3% of $100,000 ---- $3,000.

Here are the steps needed for the 203K loan:

• Locate a property you wish to purchase. The purchase contract should state you are seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the lender.

• You select an FHA-approved 203(k) lender and arrange for a detailed proposal showing the scope of work to be done, including a cost estimate on each repair or improvement of the project. You need at least $5,000 in repairs (and elective improvements) in order to get the loan.

• If you qualify the lender will issue a loan in an amount that will cover the remodeling costs and allowable closing costs. An amount equal to 10% to 20% of the requested repairs will be added to cover contingency repairs that might not have been noticed in initial review.

• At closing the seller of the property is paid off and the remaining funds are put into an escrow account to pay for the repairs and improvements on the property

The mortgage payments and remodeling begin after the loan closes but the borrower can decide to have up to six months of mortgage payments (PITI) into the cost of rehabilitiation if the property is not going to be occupied during the rehab period.