I wanted to give you an update on a program that can be awesome for selling your houses when doing short sales and foreclosures. It can also be great if you’re buying and holding.
The HUD 203K program is designed for properties that need repairs or need to be rehabbed. Keep in mind that the HUD 203k program doesn’t loan the money, they insure the money for the lender making the loan.
This program can be excellent for investors in the short sale and foreclosure arena, because you can now sell to potential buyers who get qualified for the HUD 203K program. It’s also a great tool for real estate agents that deal with short sales and foreclosures (who doesn’t nowadays, right?).
The HUD 203k loan program is different than a typical rehab loan, because with a rehab loan, the term is usually temporary until the property is completely rehabbed, then the loan will be converted into a long term loan. With HUD 203k, the loan is made in full and set as a long term loan from the beginning, based on the estimated “after repaired” value. The purchase is made, and repair funds are put into escrow and used as needed.
The eligible property must be a one to four unit property that is more than a year old. Also, a single family home can be converted to multi-family, up to four units, or a multi-family can be converted to single.
Bottom line, this program is awesome, and you should know about it when doing your short sale and foreclosure investments, or even just wholesaling! This gives you a great tool for your arsenal when it comes to finding buyers, or providing ideas for their financing. It also keeps you from having to do rehabs yourself before selling. Just find it, get it under contract, and sell it! I wish they would have had this program a few years ago, it would have saved me some time and money with my short sales. This is an excellent tool for short sale and foreclosure businesses.
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You can get more information on the HUD 203K program on the HUD website.
David Corbaley
{ 7 comments… read them below or add one }
David, thanks for getting the word out on this program. As you mentioned it truly is an awesome program. The 203k programs is basically a FHA loan that allows for repairs. You only have to put 3.5% down and the repairs are done after closing by a contractor of your choice. Don’t forget FHA relaxed the 90 day flipping rule, which is also great news for investors and works well with this program. You can also get repairs up to the FHA limits for your County.
The program is not new and has been around for over 20 years! I also would be reluictant to tell people they can do conversions as HUD allows it, but most lenders do not.
Hey Toby, thanks for adding info on this topic!
Hey Matt, you are correct, but there are many new investors and agents that read this blog, and I need to remind people of things like this regularly. Imagine how many people could lose deals if they didn’t know about a program like this. If I’d have known about it 3 years ago, I could have easily sold a second 4-plex I had for sale then and made an additional 50-60k. I don’t want others to make that expensive mistake because they didn’t know about an existing program.
It is a great program. Another great use of the program is the 203K streamline rehab loan. The loan is great as a sales tool for a property that does not require tons of work, but is not perfect for the buyer. Imagine this…”Mr. Jones, I know you love this house, the yard and the school system. You mentioned that you hate the yellow kitchen…..If I can show you a way to borrow the money to make this kitchen a kitchen of your dreams, would you want to make an offer?”
David, are there any hud restrictions for investors? Can I get
multiple 203k loans?
Great question! Answer: I’m not sure. According to the HUD website, they say: Can an investor use the 203(k) program?
No. In October, 1996, the Department placed a moratorium on investor participation in the 203(k) Rehabilitation Mortgage Program.
They ALSO say:Is there a limitation on how many properties a person or organization can have in any area of the community?
Yes. A borrower can have not more than seven (7) units within a two block radius of the property they want to purchase. However, if the property is in a local community area that has been designated for redevelopment or revitalization, then this seven unit limitation does not apply.
Seems a bit confusing to me. How the heck can an owner/occupant own 7 units??