- Are there programs for
fixer-uppers?
If you need home loan to buy a
"fixer-upper" and remodel it, look at the U.S. Department of Housing and Urban
Development's Section 203(K) loan program. The program is designed to facilitate major
structural rehabilitation of houses with one to four units that are more than one year
old. Condominiums are not eligible.
A 203(K) loan is usually done as a combination loan to
purchase a "fixer-upper" property "as is" and rehabilitate it, or to
refinance a temporary loan to buy the property and do the rehabilitation. It can also be
done as a rehabilitation-only loan.
Investors must put 15 percent down while owner-occupants are
required to come up with only 3 to 5 percent. HUD requires that a minimum of $5,000 be
spent on improvements.
Two appraisals are required. Plans and specifications for the
proposed work must be submitted for architectural review and cost estimation. Mortgage
proceeds are advanced periodically during the rehabilitation period to finance the
construction costs.
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- What are some
guidelines to follow when trying to find a contractor?
While hiring contractors recommended by friends is usually a safe route,
never hire a construction professional without first checking him or her out first. If
your state has a licensing board for contractors, call to find out if there are any
outstanding complaints against that license holder. Also, call your local Better Business
Bureau to see if there are any complaints on file.
If you are satisfied with the answers you find there,
interview the contractor candidates. Ask what kind of worker's compensation insurance they
carry and get policy and insurance company phone numbers so you can verify the
information. If they are not covered, you could be liable for any work-related injury
incurred during the project. Also be sure that the contractor has an umbrella general
liability policy.
If they pass the insurance hurdle, next check some of their
references. A good contractor will be happy to provide as many as you want.
Finally, don't let yourself be rushed into making a decision
no matter how competitive the market may seem. Also, never pay a deposit to a contractor
at the first meeting. You may end up losing your money.
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- Are fixers a good idea in
bad areas?
Distressed properties or fixer-uppers
are everywhere, even in wealthier neighborhoods. Such properties are poorly maintained and
have a lower market value than other houses in the neighborhood.
Many experts recommend that buyers find the least desirable
house in the best neighborhood and then decide if the expenses needed to bring the value
of that property up to its full potential market value are within one's budget. Most
experts say inexperienced buyers should avoid run-down houses that need major structural
repairs and instead look for properties that only require cosmetic fixes.
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