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What’s a buyer to do?

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Posted: Friday, February 1, 2013 8:59 am

Everywhere you look low housing inventory is being reported. It’s not just local to our area. Home prices are picking up because the number of homes for sale continues to drop despite sales volume gains. The number of homes for sale fell to 1.82 million at the end of 2012, an 8.5 percent drop from November and a 21.6 percent decline from one year earlier, according to the National Association of Realtors.

The result of the lack of inventory is also limiting the supply of move-in ready homes available for sale. Many buyers, especially first time buyers, tend to overlook properties in need of extensive repairs. However, because of current market conditions many buyers should reconsider homes they previously overlooked. Thankfully a federally backed lending program enables buyers to roll the cost of necessary repairs into their mortgage.

Take a look at some of the advantages and see if it might help in your home search:

The Federal Housing Administration’s 203(k) program provides for loans that cover purchase and renovation costs for single-family homes and multifamilies with up to four units. The total loan amount is based on the property’s appraised value once the repairs are completed. The down payment requirement is 3.5 percent.

FHA 203(k) loans are not available to investors – borrowers must live in the properties. But some borrowers have used a 203(k) loan to buy and renovate a multifamily property, live in the property for a year or so, refinance into a conventional loan, and then sell the rehabbed property.

The loans are more expensive than conventional financing, because the interest rates are slightly higher and private mortgage insurance is required.

Additionally, borrowers must pay a building consultant, who writes the initial estimate of the cost of planned repairs. Fees range from $400 to $1,000, depending on the extent of the repairs.

The loans do not cover the addition of luxury items, such as a pool. But allowances are made toward the cost of repairing or removing a pool, as well as for the addition of solar panels.

Other details of the program require renovations to be made within six months after closing. The contractor is paid in intervals after periodic inspections of how the work is progressing. Borrowers should make sure they hire experienced contractors who understand that they won’t be paid upfront and must adhere to strict timelines. As with any real estate related transaction I recommend that you seek the advice of your local Realtor® specialist and mortgage consultant.

In our lifetime we have not seen the extraordinary combination of historically low home prices merged with unusually low interest rates. Even though these two amazing factors are creating tough completion, I want to encourage you to keep looking and making offers. The result of owning your home is well worth the extra effort.

Sheri Aguilar is the president of the Lodi Association of Realtors and can be reached at Sheri@YourLocalAOR.com

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