Jo E. Thomas

For decades, the increase in housing stock has been on the rise with no indication of a slow-down in sight.  All around we see new construction and major renovation projects in our neighborhoods, as well as in neighborhoods we want to live.  Small slivers of vacant land now house two- and three-story residences.  Blocks of properties are razed to make way for whole new communities of single family and condominium units.  That leaves the older housing stock in need of sprucing, updating or complete rehabbing.   Home buyers are purchasing board ups and eye-sores.  Homeowners are seeking to cure the physical or functional obsolesce in their residences to keep in step with the trend.  Each breathe new life in these structures while spawning an epidemic of born-again single family homes and multi-unit buildings. 

Where does the money come from?  Most times it will derive from high interest charge cards, finance companies and second mortgages, or adjusting-rate lines of credit.  Some of these improvements are financed out of pocket. These options will lend only on the “As is” or current value of the property.   What a waste! Why not utilize options that will save you time and the added money of paying additional closing costs?

The FHA 203(k), a government insured renovation loan and the One Time Close Construction-Perm, offers solutions that factor in the financing of the renovation phase into the purchase or refinance.   The two loan programs similar in that they are purposed to create a one-stop shop for homebuyers and homeowners.  But there are differences that make the 203(k) and the Construction-Perm unique from one another.  However, together as the need for each dictates, they make a perfect marriage in rebuilding neighborhoods and improving your greatest asset- your home.

The 203(k) which also offers a streamline process can be used for 1- to 4-units, mixed-use properties and some condos.  The down payment is 3% of the purchase price or mortgage balance plus renovation costs.  Credit and underwriting is the same as a regular FHA 203(b).  The loans are based on an “As Improved” appraised value and can even exceed the “As Improved” value by 110%!

The One-Time Construction-Perm is used for higher-end projects of 1- and 2- unit properties and second home with a maximum loan to value of 90%, dictated by product and credit score. Using an “As Improved” value, the loan converts to the permanent financing at the end of the construction/renovation phase.

Both are all in one transaction and are very economical with one set of closing costs.  Soft costs for the renovation can be rolled in the loan amount and in some scenarios, the monthly payments during the renovation phase.  The permanent financing is closed before the renovation begins. 

Jo E. Thomas is a Senior Mortgage Planner/Renovation Loan Specialist for American Home Mortgage and can be reached at 708-988-5420 for further information.