Submitted an offer on a foreclosure

We recently put in an offer on a VA foreclosure to be our primary residence.  The place needs work, so we're getting a 203K loan through a local mortgage provider.  This is our first experience NOT using our primary bank for the mortgage--so far it's been a good experience. 

The 203K mortgage is a unique product and we've read many reviews from others that have had mixed experiences with the product.  The main theme is generally a lack of understanding/competency with 203k origination on the bank's part.  This really underscores the need for using a servicer that is familiar with the product and understands all of FHA's related requirements.

We're essentially planning on rolling up the bulk of the required (and desired) improvements into the home loan.  The low interest rate, and ability to use leverage, is part of the appeal for using a 203K.  I won't have to come out of pocket for the repairs within the scope that we designate will be incorporated into the loan.  With this in mind, we're going to take care of most of the big ticket items--new roof, siding, and windows.  We're also looking at building a 2 car garage addition to the house (no garage currently).  All of these repairs/improvements will be added to the loan in addition to the purchase price.

For example, let's say the house purchase price is $100,000, however you'd like to do $35,000 in repairs/upgrades.  The FHA requires a 3.5% down payment, which is $3,500 in this case. The $100k goes directly to the seller upon closing, and the $45k gets wrapped into your mortgage.  So you walk away from closing with a $141,500 mortgage balance (100,000-3,500+45,000). 

In this example, you essentially did $45,000 in repairs/updates with only coming out of pocket $3,500.  Not too bad, it shows the power of leverage. 

While we're eagerly waiting hear back on our offer, we're pressing forward with getting contractors lined up, creating a scope of work, and the other minutia related to house buying.  It's and exciting time for our family and I'll try my best to keep posting updates.

Until next time!

-Andrew