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Fix That Fixer Upper

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Shopping for the home of your dreams? After researching the neighborhood, you fall in love with the hardwood floors, large backyard and handsome original fireplace in that Craftsman cottage, but you find out the roof leaks.

Or, perhaps you had your heart set on a ranch-style charmer sitting on an acre of land, only to find once inside that the most charitable word to describe the kitchen is “rustic.” Like these properties, the home you’ve always wanted may be in the location or school district that you find desirable, and most of the features match the lifestyle you’ve envisioned.

Yet, the house needs some work. The price is within the range you feel you can afford, but you do not have the cash required for remodeling or repairs. Do you forgo the ideal location, the stylish features and resign yourself to another round of shopping? Not necessarily. Before you head out to look for another house, you may want to stop and consider a home improvement loan.

For many people just starting out, the affordable house is the one that may not yet be “perfect.” Many homes for sale just need some fresh ideas and a few improvements to suit your lifestyle.

We’re lucky that many neighborhoods are good choices for first-time home buyers. In many areas of the country, including ours, high percentages of the homes were built more than 20 years old (an age when repairs and remodeling often occur).

Fortunately, with low interest rates and a wealth of cost-effective home improvement loan options, it’s easier than ever for first-time home buyers to finance home remodeling. Home Depot and Lowes have classes that are free or almost free to assist you in your handyman tasks. They are conducted all through the week and the weekend.

At Countrywide, we have many options available for this type of situation. One option is the FHA 203(k) loan. This single loan enables buyers to purchase a home and remodel it with one loan, reducing time and money.

The remodeling costs are built into the loan, and the loan amount is based on the “after-improved” value, not the current value, of the home. That means the funds necessary to do your remodeling work are included in the loan and must be used for repairs.

Among other repairs, home improvement loans may be used to finance a new roof, a remodeled kitchen, or even the replacement of drafty old windows and doors. The 203(k) loan may also be used by current homeowners to remodel their residences. Eligible borrowers may obtain a loan with as little as three percent down. If they use a 203(k) loan, FHA will also waive the usual mortgage insurance premium that is required at closing, reducing the borrower’s cash outlay.

For example, Jackie and Fred Ezel want to purchase a $120,000 fixer-upper in their favorite neighborhood. The appraiser determines that with new plumbing, a new roof, carpeting, and fresh paint inside and out, the home would be valued at about $145,000.

Through Countrywide’s local branch, the Ezels obtain a home improvement loan for $140,650 (the “after-improved” value of the home less their three percent downpayment). After the sale closes, they will have about $20,000 set aside to make the necessary repairs. Whether you are eager to purchase that old Victorian you’ve always wanted with its outdated kitchen, or you currently live in a two-bedroom “dollhouse” that you’re ready to expand, you probably have a long list of home improvements you would like to make.

When you make the decision to move forward, take some time to investigate home improvement loans as a smart way to help you transform your “dream” home into truly the home of your dreams.
This is one of the many topics I will be discussing at the 5th AME Church Homebuyer and Financial Literacy Workshop in weeks to come. For more information contact me at 909.248.4830 ext 228.

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