Loan officers and brokers are scrambling to adjust to today's real estate market and close more loans. Besides declining markets, credit tightening, and the disappearance of loan programs, some markets are filled with foreclosed homes that have suffered from disrepair and neglect. The majority of the banks that own these foreclosed properties are unwilling to repair these homes. As such, many of these houses do not quality for traditional loan programs because the property itself does not meet the minimum standards in order to quality as acceptable collateral for most conventional loan programs.



Smart professionals take advantage of this situation to actually increase their mortgage business by offering borrowers what their competitors do not: a powerful and relatively underused loan program known as the 203(k). This rehabilitation loan is insured by the Federal Housing Agency (FHA).

This FHA-insured program prevents the need to find separate interim financing for the property's purchase and rehabilitation and allows one mortgage to cover both aspects. Maximum loan amount are determined by the Department of Housing and Urban Development (HUD) on a county by county basis. An example of a lower limit would be a single family home in New Mexico where the maximum in most counties is $271,050. Higher maximums of $729,750 are found in California. You can look up the HUD county limits by going to https://entp.hud.gov/idapp/html/hicostlook.cfm.

Some downsides to the 203(k) loan are the extra work and time it takes. However, although there is more involved in completing a 203(k) purchase than a traditional loan, most 203(k) loans can close within 30-60 days from beginning to finish. As to the additional effort that is required, that extra work can translate into a sale that you wouldn't have otherwise had. Thus in the case of 203(k) loans, more work equals more money.

Here are some of the potential benefits of a 203(k) loan:

* Energy Efficient Program: Finance 100% of the cost of eligible energy efficient improvements; maximum $8,000; No Additional Credit Qualification Required.

* Mixed Use Properties Eligible -- Subject to maximum percentages based on number of stories and percentage of commercial use.

* Up to 6 Months with NO PAYMENTS -- Not to exceed time it takes to complete the construction.

If you want to increase sales in a market filled with REO listings, the FHA 203(k) loan can be a useful tool.