Rob Proctor

Rob Proctor

The disadvantages of buying fixer-uppers are obvious: they take time and money to make them livable. The advantages, while not as obvious, may just outweigh the disadvantages for certain buyers or in certain types of markets.

With a fixer you may just be able to create the home of your dreams instead of settling for a floor plan or flow that doesn’t really work for you.

Plus, if you play your cards right, you can get an amazing loan that will wrap the cost of the rehab work into the mortgage. You’ll get more house for the money and it will be customized to your tastes and lifestyle.

Loans for fixers

One of the easiest ways to pay for the rehab of a fixer is with FHA’s 203(k) program. This loan is provided by the U.S. Department of Housing and Urban Development (HUD).

It’s basically an FHA-backed loan that allows for both the cost of the home plus the amount needed to rehab it – all rolled into one monthly payment.

One of the biggest advantages to the FHA 203(k) program is that you won’t be required to make your first mortgage payment until you are actually living in the home.

Property qualifications

For a dwelling to qualify for the 203(k) program it must:

  • Be at least one-year old.
  • Retain the existing foundation if it’s to be demolished.
  • Have all work confined to the home’s interior if it’s a condo.
  • Be valued within FHA’s mortgage limit. FHA values the property either by its value before the rehab plus the cost of the rehab, or at “110 percent of the appraised value of the property after rehabilitation, whichever is less,” according to the FHA.

Borrower qualifications

The qualifications for the 203(k) loan program for the borrower are identical to those of the standard FHA-backed loan. The borrower must:

  • Be able to prove consistent employment, preferably with the same employer or the same line of work, for at least the past two years.
  • Have a social security number and be a lawful resident of the United States.
  • Intend to live in the home.
  • Prove to the lender that your mortgage payments won’t exceed 30 percent of gross income.
  • Have monthly debts that total to no more than 43 percent of gross income.
  • Not have a bankruptcy on record for at least two years, a foreclosure in the last three years.
  • Have a credit score of at least 580.

The aforementioned requirements are HUD’s – the lender may have more stringent standards. In fact, many lenders won’t approve an applicant who has a credit score lower than 620.

You must also use an FHA-approved lender. HUD has a list of them on its website.

As a side note, never is a home inspection more important than when purchasing a home that needs work. While much of the necessary repairs are easy to see, there may be even more damage that isn’t apparent. Never waive the home inspection.

By Rob Proctor. Rob is the Broker/Owner of At Home Real Estate Company in Loveland. Born and raised in Loveland, Rob calls Northern Colorado (Loveland, Fort Collins, Greeley and Windsor) his home with his wife and three daughters. To contact Rob, call 970.481.2133, e-mail [email protected] or visit