FHA and HUD minimum guidelines can throw an unexpected wrench in just about anyone’s refinance plans. Whether it be as simple as an electrical outlet being swapped out, or something much more significant, don’t let repairs derail your refinance. Read how one couple used an FHA 203K Loan to get a lower interest rate and increase their property value despite high Loan-to-Value and inspection issues.
Angela and Chris bought their forever home 3 years ago; it’s a cute bungalow with lots of natural light and original hardwood floors. They planted a vegetable garden in the backyard and have already started decorating the nursery for their baby girl due in a few months.
With a baby on the way, Angela and Chris wanted to make sure they were in the best financial position possible. They are financially savvy people, so they looked at their bills and wondered if there was a way to save money by getting a lower rate on their mortgage.
Chris did a little research and discovered that interest rates had gone down since they bought their house. However, due to changes in the market, their house was not worth much more than they bought it for. They weren’t sure they would qualify for a loan. They were frustrated, with constant changes to the market, interest rates might not be this low again for a while.
Based on a recommendation, Chris made an appointment to see meet with their loan officer, just to see what their options were. The loan officer explained that they wouldn’t qualify for a conventional loan because they owed more than 80% of the value of their home. She knew this couple was financially responsible and deserved to get the best deal. She suggested that they try an FHA (Federal Housing Administration) loan which has lower LTV (loan to value) requirements, is easier to qualify for and has great rates.
The Williamses weren’t familiar with FHA loans, so the loan officer explained the steps. First, they would need to apply and provide proof of income and current mortgage statements.
Second, they would need an appraisal, which would also have an inspection component to ensure the home meets minimum standards. Third, after the inspection, the loan would go to underwriting to see what other requirements the couple would need to fulfill.
Angela and Chris filled out the application and the appraiser came out to the house. While their home had passed a basic inspection when they bought it, this time, the FHA inspection revealed issues that prevented them from meeting minimum housing standards. So, they went back to their loan officer, unsure of what to do next. She suggested an FHA 203K rehabilitation loan, which would allow them to make the repairs and get the rate they wanted.
Angela wasn’t sure. She didn’t think that doing house repairs with a baby on the way was a good idea. She was concerned about timelines and dust and people in and out of the house. She and Chris talked about it and they got a few contractor recommendations from people they trusted. They found the right contractors and decided to apply.
They qualified for the loan! This loan allowed them to make the necessary repairs as well as take care of a few other minor issues like replacing the cracked kitchen floor, which increased their property value.
Angela and Chris are confident that they have the best rate and they got the unexpected bonus of increased property value – and all before the baby was born. It was definitely a win-win for everybody.
Are you looking to refinance? We’re here to help you understand your options and stick with you every step of the way, connecting you with the professional best suited for you.