One World Realty in Jacksonville Florida
Charles Gaulden

FHA 203k loan or Fannie Mae renovation loans

On FHA 203k loan or Fannie Mae renovation loans, what happens if there are more repairs than expected after completing the inspections? There are several options depending on the seller of the property:
  • If it’s an REO/short sale thus an As-Is property, you can simply back out of the contract based on the inspection contingency.
  • You can also continue with the REO transaction and request the seller reduce the sales price based on the property conditions. However, you must assume the bank will NOT make an changes since the property is being sold As-is. If the repairs affect the health & safety of the property you might see some relief.
  • At times,  you can ask the REO bank to make certain repairs that affect the livability of the home. This can be time consuming since they will require several estimates. In addition, Fannie Mae often has a contractual clause that allows them to raise the sales price to address the repairs. This is NOT needed if you simply use a renovation loan.
  • If the buyer is past the inspection period per contract and still needs to back out of the contract based on property conditions, we can use the Financing Contingency to cancel the transaction and get the Binder Deposit returned.
  • If its a traditional resale then the seller could either make the repairs, reduce the sale price or cancel the transaction based on the proeprty conditions.
  • Why would someone NOT get approved for a HomePath or HomePath Renovation loan? HomePath loans are conventional loans thus much more restrictive when it comes to qualifying. Here are some of the factors that can be restrictive and also require additional monies down:
  • Credit – you must have stronger and deeper credit. at least 660-680 to start (without 20% down).
  • Property type – Condos are much stricter/riskier and thus the automated underwriting  (DU) will often not approve buyers for condos unless they have strong credit and/or larger down payments.
  • Down payment – If the buyer is putting 3-5% down it is going to be much stricter than if they are putting 20% down. It’s a simple layer of risk issue.
  • Debt-to-income ratio – Fannie Mae loans are much stricter than FHA and generally cannot exceed 45% DTI regardless of the buyer’s overall profile.
  • Rates – HomePath loans have numerous additional overlays when it comes to pricing rates which often leads to higher interest rates and a higher costs to even get a rate.
  • Does using a FHA 203k or Fannie Mae renovation loan help with getting lower insurance rates? YES! Not only can it make the difference of even getting insurance on certain properties, it allows the buyer to get better insurance rates based on the after-improved condition of the property. For more details on this please contact me via phone or email.

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