The “BUT Loan”?

July 21, 2011

By Brian Short, CMC®, CRMS®, GMA®

How many times have you gone out to look at a possible house to buy and discover that you like everything about the house BUT – the windows, the flooring, the size of the closets, the way the bonus room is finished out (or not finished out) or the number of bathrooms? How many times have you thought, “There is no reason to move? We could just stay here in this house for 5-10 more years. Everything about this house still fits our needs BUT – the age of the kitchen and bathrooms, the size or number of bedrooms, the roof and siding need replacing, or the basement still leaks.”

What many homeowners and homebuyers don’t realize is that there is a loan available which will allow for the cost of repairs or renovation to be “rolled in” to a new loan used to buy or refinance an existing home. This loan is referred to by the Federal Housing Administration (FHA) as the 203k loan but I like to call it the “BUT Loan” – for those who like everything about that house – BUT…!

Just think about your current home. Would you like to update the kitchen with granite countertops, new appliances and the latest cabinets? What could you do to your master bathroom to make it more useful or roomy when you both are getting ready for the day or to make room for your Jacuzzi tub which would help you unwind at the end of a busy day? Do the kids need an extra bathroom now that they are getting older? Do you love your neighborhood and everything about your location but desire to build a new master bedroom or family room to give your growing family the space they need?

Have you been shopping to buy a new house closer to work or the schools you like but can’t find a house which has what you need? Are you hoping to move out and far away from the rush of the sprawling city but are only finding old farm houses and houses which are very dated?

The FHA 203k – or the “BUT Loan” will allow you to borrow the money you need to make the house you are considering your DREAM HOUSE since you will be allowed to have the extra money upfront to contract with skilled workmen who will come in and kick out all of the “BUTS” which are keeping you from loving your house. The appraiser will assign the value of your new loan based on the final improved condition of your house after the repairs and renovation is complete. Matter of fact, if you are buying a new home you can even roll in the mortgage payments – up to 6 months – if you are unable to live in you new house while the rehabilitation is being completed.

The down payment on the purchase of a house using the 203k would still only be 3.5% of the improved value and if you are using the this loan to update or improve your current house this entire project could likely be completed at no out-of-pocket cost to you as a home owner except for an appraisal which would cost less than $500 and could likely be refunded at the closing. All other costs could likely be rolled into the new historically low rate loan.

Do you know of family members who are hoping to buy a foreclosed house at a great low price but keep finding houses which are beat up, stripped of the appliances or in dire need of repair or updating? The FHA 203k will make their dreams come true when they find out that they can pick out their own cabinets, counter tops, appliances, flooring, siding, paint and wallpaper and not have to drag out these projects over the next 1-3 years. They can have all of these updates and repairs completed even before they move in and roll all of these costs into their low rate 30 or 15 year mortgage.

This loan takes only a couple of weeks longer to close than a normal purchase or refinance loan to make sure all of the repairs have been carefully calculated and the work has been outlined in detail. Nearly any house would qualify for this “BUT Loan” and many borrowers – even those with some credit blemishes in their past – will qualify for this loan when they might have difficulty getting a conventional loan – with no money allowed to pay for the repairs.

If this sounds like something you might want to know more about check out the website: www.REbuildTennessee.com for more details and some “before and after” photos of houses which have benefitted from the “BUT Loan”. Happy dreaming!

Brian Short (NMLS # 168856) is a nationally certified, state licensed mortgage professional with over 13 years of experience as a “Dream Maker and Problem Solver” in middle Tennessee who works for AmeriFirst Home Mortgage (NMLS # 110139). He can be contacted through his website: www.ProMortgageMatters.com.

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