How to Finance a Fixer-Upper

Financing the purchase and improvement of a Cheap Home

Without money or very little cash or with poor credit it is difficult to buy a house that needs repairs but it can be done through:

1. HUD 203K program (Buy and Repair Loan program)

2. U.S.D.A. Direct Section 502 Loans (Low credit okay, low income okay)

3. Contract for Title (Deed)

4. First Mortgage and Promise

5. Hard money

If your credit score is ' fair ' (620 score) you may be approved to purchase and repair the home through a 203k loan from HUD or Agriculture Direct.

203k HUD (Housing and Urban Development) 

(http://portal.hud.gov/203k) is a program that allows a buyer borrow to buy and repair. Not all banks originate 203K loans; before applying for a HUD 203K loan ask the bank if they do it; not all do. If your credit score is ' fair ' (620 score) you may be approved to purchase and repair the home through a 203k loan from HUD or Agriculture Direct. 

203k loans, like FHA loans, are only for borrowers who intend to occupy the property as their primary residence. First-time home buyers may qualify, investors cannot. You can borrow up to 110 percent of the proposed future value of the property, or the price of the home plus repair costs, whichever is less.

The types of improvements that can be made using 203(k) financing include: Structural alterations and reconstruction Modernizing and improving the function of the home Removing health and safety hazards Changes that improve appearance and eliminate obsolescence Retrofitting or replacing plumbing; installing a well and/or septic system Adding or replacing roofs, gutters, and downspouts Adding or replacing flooring and/or floor treatments Major landscaping and site improvements Improving accessibility for a disabled person Making energy conservation improvements

Department of Agriculture direct loans and Guaranteed Loan Program

for single family homes. Department of Agriculture-Direct Loan Program- Section 502, helps low and very low income applicants obtain decent, safe and sanitary housing in eligible rural areas by providing payment assistance to increase the applicant's ability to pay. Payment assistance is a type of subsidy that reduces your mortgage payment for a short time. The amount of assistance is determined by adjusted household income. Fixed interest rate based on current market rates at loan approval or closing, whichever is lower. The interest rate, when modified through payment assistance, can be as low as 1%. Up to 33-year repayment period: 38-year repayment period for very low-income applicants who cannot afford the 33-year loan term. Prompt payment is generally not required.

• Generally, rural areas with a population less than 35,000 are eligible and
• The loan can be used to buy and repair the property.

Single Family Housing Direct Home Loans USA and Puerto Rico                                                (https://www.rd.usda.gov/programs-services/single-family-housing-programs/single-family-housing-direct-home-loans)

Single Family Housing Guaranteed Loan Program (SFHGLP) Active Lenders USA and Puerto Rico (https://www.rd.usda.gov/resources/lenders)

Contract for title 

is a title conversion contract; known as an ‘installment purchase contract’ or ‘installment sale contract’. It is a real estate transaction in which the purchase of the property is financed by the seller rather than by a third party, such as a bank, credit union, or mortgage lender. It is often used when a buyer does not qualify for a conventional mortgage.

Some sellers prefer to have payments:

• Less capital gain to pay in their income tax,

• Money kept secured in real estate and not at a bank earning low return,

• Debt against the property.

Title contract for deed 

are also a favorite trick for real estate scammers who either “move” a property among multiple potential home buyers or collect payments from a buyer while letting the property fall into debt with an unpaid mortgage.

You can finance a property with the owner with little or no money, asking the seller:

1. ‘Contract for the Title’ of the property or,

2. First Mortgage and a Promise of a global payment (Balloon Payment)

of the balance in 12 to 24 months.

After repairs the property's value increases and you can refinance up to 80% of the property's value. If the seller (s) are willing to finance the sale price or enter into a contract for the title of the property.

When looking for seller financing it is not uncommon to offer to pay 5% to 10% more on the interest rate that a Bank offers. Offering a seller/owner to finance at 5% to 10% more than the interest rate that Banks are offering is an incentive; also, offering a balloon payment after 12 to 24 months.

Before signing ‘Contract for Deed’ (a title conversion contract), as a prospective home buyer you should ensure fully understanding the scope of the obligations under the contract, all costs for which you will be responsible and the risks you incur, including how quickly you can lose the house and all the payments you have made. Register the ‘Contract for Deed’ (conversion contract).

Hard Money loans 

are "last resort" loans or short-term bridging loans. A hard money loan is a type of loan that is secured by real estate. These loans are mainly used in real estate transactions, and the lenders are generally individuals or companies and not banks.