May 12, 2016
A reader got in touch with us recently to ask about FHA loan rules for a home in need of certain types of repair. “If the home needs a new roof, will FHA allow a clause or let money sit in escrow for roof repairs after closing?”
While the question is too general to give a specific yes or no answer to, there is at least one option that may be possible. Much depends on what the FHA appraiser recommends for that property.
Does the roof need to be replaced completely? Or are there simple repairs required? Has the appraisal happened yet, or is the borrower aware of a situation with the roof that could interfere with loan approval unless repaired or corrected?
An FHA appraiser will recommend corrections in certain cases that would be required as a condition of loan approval. In some cases repairs may be required that are minor enough that the loan may close, in others the condition of a home may be so bad that the loan is not deemed possible due to the fact that there is no “remaining economic life” left in the property.
But in other cases, if a borrower wants to purchase a “fixer upper” home, an FHA 203(k) rehab loan may be the answer.
The FHA loan rule book, HUD 4000.1, describes the FHA 203(k) rehab loan as a mortgage or refinance loan designed for single family residences (one to four units) that allows the borrower to “rehabilitate such a Structure and refinance the outstanding indebtedness on the Structure and the Real Property on which the Structure is located; or purchase and rehabilitate the Structure and purchase the Real Property on which the Structure is located”.
In cases like these it is best to discuss the 203(k) option with the lender to see what may be possible. Not all participating FHA lenders may offer a 203(k) rehab loan, but many do. This type of loan and refinance loan is also available for qualified borrowers who want to repair or rehab a home damaged in a natural disaster. The FHA 203(k) rehab loan for disaster victims is a separate type of loan than a “standard” 203(k), so borrowers who need that specific type of mortgage or refinance loan should apply specifically for it.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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