Monday, February 21, 2011

Rehabbing a home- the 203(k) loan

The Section 203(k) Program is HUD's primary program for the rehabilitation and repair of single- family properties. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities. Since these are the primary goals of HUD, it believes that Section 203(k) is an important program and intends to continue to strongly support the program and the lenders that participate in it. Most mortgage financing plans provide only permanent financing. When a home buyer wants to purchase a house in need of repair or modernization, he or she usually has to obtain financing first to purchase the dwelling, additional financing to do the rehabilitation construction, and a permanent mortgage when the work is completed to pay off the interim loans.  The Section 203(k) Program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. To minimize the risk to the mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point, the lender has a fully-insured mortgage loan.

To be eligible, the property must be a one- to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable according to the provisions of local zoning requirements. All newly constructed units must be attached to the existing dwelling.
This program can be used to accomplish rehabilitation and/or improvement of an existing one- to four-unit dwelling in one of three ways: 
  1. to purchase a dwelling and the land on which the dwelling is located and rehabilitate it;
  2. to purchase a dwelling on another site, move it onto a new foundation on the mortgaged property, and rehabilitate it; or 
  3. to refinance existing indebtedness and rehabilitate such a dwelling.
Mortgage proceeds must be used in part for rehabilitation and/or improvements to a property. There is a minimum $5,000 requirement for the eligible improvements on the existing structure(s) on the property. Minor or cosmetic repairs by themselves cannot be included in the first $5,000, but may be added after the $5,000 threshold is reached. 

In order to determine the maximum mortgage amount, the 203(k) valuation analysis consists of two separate determinations of value; a as-is value, and a value after rehabilitation.

Home buyers who purchase a property with cash can refinance the property using 203(k) within six months of purchase, the same as if the buyer purchased the property with a 203(k)-insured loan to begin with.

For complete details of the 203(k) loan program, visit the HUD site.

Friday, February 11, 2011

Ice Dam Danger

With temperatures warming up just a bit more during the days, those snow covered roofs are beginning to thaw, the snow is melting and making its way down to the gutters.  A big concern with this, is that as the water collects it has the potential to refreeze during the colder nights and cause an ice dam.

An ice dam is a ridge of ice that forms at the edge of a roof and prevents melting snow(water) from draining off the roof.  The water that backs up behind the dam can leak into a home and cause damage to walls, ceilings, insulation, and other areas.  The main culprit of ice dams occurring is when the temperature in your attic is above freezing. When the temperature in your attic is above freezing it causes snow on the roof to melt and run down the sloping roof.  When the snow melt runs down the roof and hits the colder eaves, it refreezes. If this process continues over a few days, the ice dams up, water ponds, and can back up under the roof covering and leak into the attic or exterior walls of the house.  So the real culprit here is heat escaping from the living quarters and entering the cold attic. Some steps that should be taken to ensure you don't encounter ice dams is to check and improve attic ventilation, and improve attic insulation to prevent heat from escaping.  Even if water doesn't seep into the attic, ice dams are still dangerous, as moisture can enter the attic and mold could develop.  If your house has persistent ice dams, it may be time to call a qualified professional to asses the problem.