Building a Better Home-Purchase

Building a better home-purchase, for the purpose of this article, outlines the entire process of home buying which includes before, during and after the purchase. In the majority of home buying transactions the process includes the before preliminaries (preparing yourself to make the purchase and finding a suitable home) as in blocks One & Two below; And during (the mortgage financing process as in block Three below.

Block Four would occur after the transaction closes; BUT, it must have been initiated between Block One and Block Two because a home buyer has to decide on the specific mortgage type which, in this case, is the FHA 203k rehabilitation mortgage loan and would therefore require a mortgage clause in the purchase contract to indicate that 203k mortgage financing is a condition of the purchase.

The building blocks for a home-purchase include the following:

One - Preparation (personal) - Things you can review in preparation for your home purchase

Job - Length of employment, job security, and good to excellent prospects for continued employment.
Savings - Having put aside enough money to satisfy down payment, closing costs and at least 3 months reserves (one month reserve equaling one month PITI)
Credit - Reasonable to excellent payment history on all accounts, account balances at or below 50% of account limits and reduction in the number of accounts to six or below (including balance transfers if necessary); Or a credit score ranging from 660 to 770 and above.

Two - Preparation (house) - Searching for and selecting the best home for your money

Real Estate Broker - Interviewing real estate brokers, including buyer's agents, that you will make your purchase with (or through)
FSBO (For Sale By Owner) - Going it without a broker includes contacting the home seller(s), making your offer directly to him/her/them, preparing and making your initial offer, and setting up your contract signing (things that a real estate broker would usually do to assist you).
Mortgage Broker/Lender - Arranging your own mortgage financing through a lender of your choosing is a right bestowed upon you by federal law.

Three - Preparation (mortgage financing) - No one, including your real estate broker, mortgage broker or even your attorney, has the right to determine where you secure mortgage financing, unless you authorize them. Having said that, you should be a little more studious in doing your homework/research when deciding the type of mortgage financing you end up with for the next umpteen years.

Mortgage Type - Generally your choices would be Conventional, PMI (a higher LTV conventional mortgage), FHA (Federal Housing Administration) – including 203b, 203k and Streamlined K - and VA (guaranteed for military veterans and their spouses).
Mortgage Application - Depending on the lender you select this application could be done by mail, via the internet or in person. It really depends on how much of the work you want to do.
Appraisal Report - Although you pay the appraiser's fee, you do not get to select the appraiser. This is done by your lender; And although you are entitle to a copy of the appraisal report, many lenders do not release it until the closing or without a written request from you, or both.

Four – Preparation (finding a licensed and insured general contractor) – The contractor plays a key role in a 203k-financed home purchase.

Contractor's Estimate – Required to provide the mortgage lender's personnel with an amount to be financed into the mortgage.
HUD Consultant's Work Scope – Required by HUD for property inspection, to keep the work estimate figures in line with reasonable market rates, and establish the required contingency reserve.
HUD Consultant's Work Inspections – Also required by HUD to insure that work is being done without extended stoppages (30 days or more), as well as to authorize release of funds to the contractor after each stage is completed satisfactorily.

Once your blocks are prepared and ready to be stacked, be mindful of non-refundable upfront cash requirements (example, application, appraisal, HUD-consultant & credit reporting fees).

When you enter negotiations to purchase a home the blocks of preparation mentioned above are generally what you would need to have put in place as things to plan for as part of the transaction prior to actually making a long term commitment at the lender's closing table. Once the appraisal report is completed you are well into the transaction and the only way out is if the appraised value is is reported as less than your contract price, or if your mortgage application is declined by the lender for another reason.

If the home is appraised at less of a value than the agreed upon price, you are not required to complete the purchase, unless it is so stated in the contract; and if your mortgage is declined you cannot complete the purchase. In both cases however, you are entitle to a full refund of your down payment. You will not receive a refund of any part of the appraisal fee, and if your attorney charged a retainer fee that is probably not refundable either.

Start Building

So you're ready to build a home-purchase, your better home-purchase, in order to satisfy everything you require in a home. Requirements that include major working components in the home to be working well after the closing takes place, when your savings are depleted and there is no room for unforeseen breakdowns and emergency repairs. You need your home to be in top shape and you wanted to have a hand in making it so in order to eliminate the chance of an unexpected outlay of cash which may have been set aside for other purposes.

Financing your home purchase with the FHA 203k rehabilitation loan keeps you, the buyer, involved with the purchase throughout the entire process. Unlike FHA 203b or conventional and PMI loan programs where you are not required to show up at the time of appraisal inspection or at any other time except the pre-closing walk-through; during the 203k process you must select the general contractor and show up when the work inspection is being done so that you can outline what work you need done and perhaps how you need it done.

Once the transaction closes and work begins on your new home you are also continuously involved if repairs are not too extensive, because you would have moved in; And if the repair work is such that it renders the home uninhabitable you must still maintain a presence in order to determine what kind of progress is being made, as well as to collaborate with the contractor and HUD consultant so that everyone is on the same page as to when you can move into your home. When everything is said and done, you would have completed building your home-purchase in a manner designed to serve you well for many happy years after closing.