Looking for a loan for a fixer-upper? Maybe it's time to look at a 203 K loan.

If you been involved in the mortgage business for a couple of days, you've likely heard a nightmare story of a loan falling apart due to some construction related issue. I personally had a lender deny one of my client's loans because they did not have a railing on their back steps (note that there were two steps). A house that's missing floor coverings, plumbing items, or lighting fixtures will not likely fly under the scrutiny of many underwriters in today's environment. This makes sense considering that they need to compare your home to other recent sales which probably did have working toilets and heat. So, what options do you have to purchase a home that needs some TLC? A FHA 203K loan might be the right place to start. These loans are designed for the rehabilitation of single family homes where consumers are able to obtain one single mortgage at a long term fixed interest rate. The mortgage is based upon the projected home value once the rehab work is complete (also taking into account the cost of the work that is needed in the remodel).

203K rehabilitation loans can only be used on 1 to 4 unit primary residences (sorry investors) and the homes have to be over a year old. In other words, you cannot buy a newly constructed home and dress it up even more using FHAs program (note that HUD does not deem "luxury items" eligible). I could go on and on regarding the details of the program but there is a great overview on HUD's web site.

I know many mortgage professionals who try to steer clear of 203K loans because, 1) they've never done one and they seem complicated and, 2) they don't think that payoff is worth the effort. Therefore you may want to seek out lenders and brokers who are actively broadcasting that they do 203K loans such as American Financial Resources (NMLS#2826). I just did a search for "203K loans" in Google and most of the results are for web sites designed by publishers who are looking to generate leads or adsense revenue. 203K's loans might be the perfect fit for buyers in need of some capital to make repairs. They just need to be prepared to spend some time researching companies who actually know what they are doing.