HUD 203(k) Rehabilitation Mortgage Loan Program Finds Home in Alaska.

• Author: KANE, ROGER
• Position: United States. Department of Housing and Urban Development

The Real Estate Green Sheet

Purchasing a fixer upper? Moving a dwelling from one site to another? Refinancing and rehabilitating a home? If so, the United States Department of Housing and Urban Development has a program tailored to fit those needs.

Dubbed the 203(k) Rehabilitation Mortgage, the loan is named after the section of the National Housing Act it was written into and is part of HUD's plan to bring affordable home ownership to the masses. Interest rates on a 203(k) loan are typically about three-quarters of a percentage point higher than conventional mortgage rates. January 3, the interest rate on the 203(k) was 8 percent.

The way the 203(k) Rehabilitation Mortgage works, and the idea behind it, is to make less-than-desirable properties more desirable by bundling their purchase prices and the cost of renovations into one loan, according to Bobbie Rawcliffe, Alaska USA's senior mortgage loan originator in Wasilla.

While the HUD-FHA insured program has been around since the 1960s, it was not offered in Alaska until the late 1980s. Before then, lenders required dwellings in need of repair to be fixed before mortgages could be secured, but with the 203(k), prospective buyers can secure loans based on the future value of a property, Rawcliffe said.

The 203(k) Rehabilitation Mortgage is attractive to buyers because it affords them the financial flexibility to buy older homes needing modernization, homes in disrepair or homes that need to be moved. What makes them more attractive is that the cost of remodeling or moving is included in the mortgage.

Sellers also benefit from the program (and many view it as a Godsend) because they can sell their homes in asis condition and avoid the cost and hassle of having to repair their homes, or owner-finance the sale.

While the 203(k) mortgage benefits buyers and creates a market for sellers, there are drawbacks and pitfalls in the program. One limiting factor is that there are only a handful of lenders in the state who have the expertise and qualifications to underwrite 203(k) loans.

"There is a lot of work on the lenders' part," Rawcliffe said. "Whether you consider it a savior or a curse depends on the individual transaction."

Some of the things that can make a transaction difficult include small mountains of paperwork, whether or not a building needs to be moved, problems with contractors and cost overruns. Helping ease the burden on lenders, and buyers, are the 203(k) construction consultants.

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