Tag Archives: Department of Housing and Urban Development

HUD is Here to Help!

The Department of Housing and Urban Development (HUD) is a government entity that helps both cities and individual homeowners across the country. HUD can help you buy a home, but it’s a little known fact that HUD can also help you improve your home.

Buying a home can be a difficult process, but what if the home of your dreams isn’t quite dreamy enough? What if it’s in need of some serious repairs? That’s where HUD comes in.

What is HUD’s 203(k) program?

HUDWhen a home buyer wants to purchase a house in need of repair or modernization, the buyer usually has to obtain financing first to purchase the dwelling; additional financing for the rehabilitation; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation.

With HUD’s 203(k) program, the borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. The mortgage amount is based on the projected value of the property once the work completed, taking into account the cost of the work.

What types of homes are eligible?

For a property to be eligible for a 203(k), it must be a one- to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable according to the provisions of local zoning requirements, and all newly constructed units must be attached to the existing dwelling.

Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided the existing foundation system remains in place.

Other options

This HUD program not only allows home buyers to complete rehab projects, such as painting, tiling, roofing, etc., it also provides the option of turning a single-family home into a multi-unit dwelling (up to four families), or taking a multi-unit dwelling and converting it into a single family home.

You can also move a modular home onto the site of the mortgaged home, but the HUD funds can’t be used to fix up that property until the new foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation.

How the Program Can Be Used

There are three ways you can use a HUD 203 (k) to rehab or improve a one-to-four unit dwelling:
1. To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.
2. To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
3. To refinance existing liens secured against the subject property and rehabilitate such a dwelling.

Home buyers can use the 203(k) program for painting, room additions, decks, and other items even if the home does not need any other improvements; however, all health, safety and energy conservation items must be addressed prior to completing general home improvements.

The 203(k) cannot be used for luxury improvements, such as adding a Jacuzzi or a wine cellar.

For more detailed information about the program, visit the HUD website at hud.gov.

How to bargain shop for mortgages

Shoppers, I bet many of you scoured the Sunday ads and bounced to several stores for deals over Thanksgiving weekend.

What if you applied that same effort and vigilance to shopping for a new home loan or refinance? That same attention to detail could translate into hundreds to thousands of dollars in savings over time.

“People think nothing about going to many different stores to buy a toaster or oven or dishwasher,” said Norma Garcia, attorney at Consumers Union, publisher of Consumer Reports magazine. “They just don’t shop for (home) loans the same way they shop for other products, but they ought to.”

Consumers likely are more comfortable comparison-shopping for microwaves than mortgages because the home-loan process can be cumbersome, with reams of paperwork, unfamiliar jargon, and of course, the rush to close and move to a new place.

The U.S. government is working to make the process easier. Since May, officials have been trying to simplify and combine two required forms that show would-be borrowers their final loan terms and costs before closing. The “Know Before You Owe” campaign, spurred by sweeping financial reforms in 2010, has produced two drafts of the merged documents that are still in testing phase…

FORMS TO KNOW

This gives you an approximation of what you may owe at closing. It lists the basics including loan amount, interest rate and potential penalty costs. The form also shows you different loan scenarios to illustrate whether it would make sense, for instance, to buy points upfront to reduce your interest rate. (One point typically equals 1 percent of the loan’s value, or $1,000 for each $100,000 borrowed.) Click here to see the whole form

 

FORMS TO KNOW

You get this at the closing table. The form lists every single expense and credit involved in the transaction. Click here to see the whole form

 

You also get this at closing. The document breaks down how much you will owe in a different way. Perhaps the most important detail is the annual percentage rate, which rolls in all of your costs and is defined by HUD as the “true cost” of a loan. Click here to see the whole form

TO-DO LIST BEFORE CLOSING

• If there’s a line item you don’t understand in any of the forms, ask about it.

• Scan for hidden costs. Third parties get proceeds from loans in the form of fees and commissions, said Norma Garcia, attorney at Consumers Union, publisher of Consumer Reports magazine.

• Know who’s going to service your loan. The holder of your loan can sell the loan to anyone, but they have to disclose the percentage of loans that are sold. “If you choose to go with that lender, just know that may not be the person you’re dealing with down the line,” Garcia said.

• If you sense your lender isn’t being upfront or answering your questions, find someone else. It may take interviewing two to three people to find the right lender.

• Get a second opinion on your loan documents from HUD-approved counselors at little or no charge. But be sure to do this before closing. For San Diego, you can call the Housing Opportunities Collaborative at (619) 283-2200 or (800) 462-0503. Someone will direct you to the right agency.

• Don’t sign anything unless you understand it.

Read the whole article by SignOnSanDiego.com here: “How to Bargain Shop for Mortgages“.