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Craig Greene: Making Good Use of Renovation Loans

They're perfect for fixer-uppers, foreclosures and improvements

When showing clients a home that needs repair, give them some information on the Federal Housing Administration’s 203k renovation loans.

These loans are perfect for a bargain hunter who has spotted a fixer-upper or a foreclosure in need of immediate repair, or a client who has found a home that would be ideal if only there were a third bedroom and a second bathroom.

The renovation loans provide the money to both purchase the home and finance the home’s renovation. With one loan, there is only one application, one set of fees, one closing and one monthly payment. At closing, the house is paid for, and the repair money is put into a trustee account for disbursement as repairs are completed.

Improvements can include anything that adds value to the home, such as a room addition, new carpeting, landscaping, plumbing, roofing or a new kitchen. The loan also can be used for energy-efficiency improvements that qualify for tax credits under the new stimulus package.

Another great advantage of a renovation loan is that it provides borrowers a loan based on the increased property value after renovation. But that’s not the only financial upside. The required down payment on a renovation loan can be as low as 3.5 percent. As a tax deductible first mortgage, the renovation loan will usually feature a lower interest rate than a second mortgage, and improvement costs can be spread over the term of the loan.

The loan also can provide financing for up to six months of mortgage payments if the house is not occupied during construction.

Just knowing about the renovation loans may make the vital difference to motivate buyers to purchase.

Craig Greene is a senior loan officer at Prospect Mortgage, 3916 State St., Suite 100, Santa Barbara 93105. He can be reached at .(JavaScript must be enabled to view this email address) or 805.898.4211.

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