FHA lending program allows investors to tap into run-down homes

TRD New York /
Jan.January 18, 2013 09:00 AM

A federally backed lending program may help buyers tap into run-down homes for a quick return on investment, the New York Times reported.

The Federal Housing Administration’s 203(k) program allows buyers to incorporate the cost of necessary repairs into their mortgage, on both single-family homes and multi-family homes with up to four units. The loan — which requires a low down-payment of 3.5 percent — covers purchase and repair costs and is determined using the property’s post-restoration value. Originations of 203(k) loans have increased to more than 25,000 in 2012, up from 3,400 in 2007.

This opens the door for investors to quickly turn around a home for a profit, experts say.

“When people are buying the houses correctly, they’re actually generating instant equity,” said Jeff Onofrio, the director of renovation lending at AnnieMac Home Mortgage in Mount Laurel, N.J.

“The properties that are going to give the instant equity are the bank-owned houses with no heat or a failing roof, and those shortcomings are accounted for in the sales price,” said Matt Perillie, a loan specialist at Campbell Mortgage in North Haven, Conn.

The 203(k) program was begun in 1978, but gained popularity after the foreclosure crisis that began in the early 2000s. In the fiscal year that ended Sept.30, 2012, the FHA endorsed 22,500 loans, as compared to 3,400 in the 2007 fiscal year.

To be sure, the loans are more expensive than conventional financing due to higher interest rates. Investors are also required to live in the property. But Onofrio told the Times that borrowers would often use the loan to buy and renovate a multi-family property, live there briefly and then refinance the property using a conventional loan. [NYT]Hiten Samtani


Related Articles

arrow_forward_ios
1633 Broadway, 55 Hudson Yards, and 650 Madison Avenue (Credit: Google Maps)

A pair of billion-dollar refis tops the list of Manhattan’s largest real estate loans in December

From left: 1407 Broadway, 805 Third Avenue and 195 Broadway (Credit: Google Maps)

These were the 10 largest Manhattan real estate loans in November

28 Liberty Street, 335 Madison Avenue, One Manhattan Square and 1295 Fifth Avenue (Credit: Google Maps, StreetEasy)

These were the 10 largest Manhattan real estate loans in October

The Coca Cola Building (red) at 711 Fifth Avenue, the Crown Building (blue) at 730 Avenue, and the Tribeca Clock Tower (green) at 108 Leonard Street (Credit: Google Maps)

These were the 10 largest Manhattan real estate loans in September

Clockwise from top left: The Watchtower building at 25 Columbia Heights, Long Island University at 1 University Plaza, The Rheingold at 10 Montieth Street and 871 Bushwick Avenue in Brooklyn (Credit: Wikipedia and Google Maps)

These were the top 10 outer borough loans last month

From left: One Bryant Park, 575 Fifth Avenue, and 250 West 19th Street (Credit: The Durst Organization, LoopNet and Google Maps)

These were the 10 largest Manhattan real estate loans in August

Clockwise from left: a rendering of the Greenpoint at 21 and 23 India Street in Greenpoint, a rendering of the Tangram project at 133-27 39th Avenue in Flushing, and 564 St. John’s Place in Crown Heights (Credit: StreetEasy)

These were the top 10 outer borough loans last month

Clockwise from left: 200 East 83rd Street, South Street Seaport, 250 Park Avenue, and 477 Madison Avenue (Credit: Google Maps and NYCgo)

These were the 10 largest Manhattan real estate loans in July

arrow_forward_ios
Loading...