Getting Your Own Fixer Upper

by Michelle Olson

Like the rest of America, I think it is safe to say that the Lehigh Valley has also fallen in love with TV’s favorite couple Chip and Joanna Gaines, stars of the smashing hit show “Fixer Upper,” HGTV’s #1 rated show.  Who doesn’t wish they could fly Joanna to their rescue to make their homes more functional and beautiful, tearing down walls and opening up living spaces (one of her signature moves).  Viewers love the finished results, but when considering their own fixer upper, there are some tall hurdles to clear.  Who wants to dig into their savings and spend $50,000 to $100,000 on creating those dream renovations?  Secondly, how do you get a mortgage on the improvements before you actually start the renovations?  Sadly, these hurdles leave fixer upper dreams unreachable.

Speaking of fixer uppers, each city, town and borough in the Lehigh Valley has endearing pockets of beautiful old homes with brilliant character and charm.  As a realtor with the boutique real estate firm Carol Dorey Real Estate, I have the privilege of seeing hundreds of these homes after they have had massive additions and renovations done exquisitely and keeping to period detail.  What about the thousands of other historical homes that are left wanting to see their chance to be fixed up?  Let’s consider the city of Allentown.  Allentown is full of gorgeous late 1800’s architectural beauties with 10-12 foot ceilings, huge windows, gorgeous woodwork and stunning staircases.  The reproduction cost to build these homes as they were built originally would be astronomical and unrealistic.  The residents of long ago appreciated the now coined term “walkability” to all necessities for everyday living.  Today, millennia’s are tapping back into the simple living lifestyle approach which values renovating something that exists and reducing the earth’s carbon footprint.  They recognize that living downtown not only can help local businesses thrive but it also provides natural exercise as life is lived walking and riding verses driving.  I reference Allentown, because of the wonderful renaissance the Queen City is experiencing right now!

So back to the gorgeous old home, that fixer upper on the market that you would just love to get your hands on and bring it to the 21st century without losing its magical charm.  The home that will most likely “need” stainless appliances, granite countertops, commercial grade  stove and open spaces where the whole family can gather.  And of course, just like the TV show, you want all of your renovations completed before you move in. This means a renovation budget that could be double or triple the price for which you buy the home.  Now what, just another fixer upper dream shattered?  No, it doesn’t have to be, that is why I want to share with you the good news of a special mortgage program, widely unknown, that can make your fixer upper a reality.

The Federal government offers a plan under their FHA program called the 203(k).  This program fills a unique and important need for homebuyers. According to the US Department of Housing and Urban Development, when buying a house that needs repair or modernization, homebuyers usually have to follow a complicated and costly process. The interim acquisition and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment.  However, Section 203(k) offers a solution that helps both borrowers and lenders, insuring a single, long term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a property.

Section 203(k) mortgages can be used to purchase a fixer upper or to refinance and fund rehabilitation of your current home.  The subject home must be at least a year old. In a purchase scenario, a portion of the loan proceeds is used to pay the seller and the remaining funds are placed in an escrow account and released as rehabilitation is completed. The cost of the rehabilitation must be at least $5,000.  The value of the property is determined by either (1) the value of the property before rehabilitation plus the cost of rehabilitation or (2) 110 percent of the appraised value of the property after rehabilitation, whichever is less.  There are other program specifics like credit score minimums, 6 month renovation time period limit and an after improvement loan maximum of $372,600.

So maybe you don’t need to fly Joanna Gaines in to the rescue after all.  The 203(k) has landed and it can help you pursue your own dream home.  Start hunting – there’s a fixer upper waiting for you, so as Joanna says, “Do you have the guts to take on a fixer upper?”

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