Buying a Fixer-Upper? The 203(k) Program Can Help
Buying a Fixer-Upper? The 203(k) Program Can Help A tight listing market pushes buyers to look at potential more than curb appeal, and HUD’s 203(k) program helps them include upgrade costs in their first mortgage. WASHINGTON – For more than four months, Amina Thompson-Wright and her husband, Dannelle Wright, tried to buy a home in Southwest Philadelphia, where they had rented for a decade. But sellers kept rejecting their offers. So they switched their strategy. They started considering homes that needed work. “When you see something new and shiny, that’s what you gravitate towards,” said Thompson-Wright, a 44-year-old social worker for the city. “But those were the homes we could never seem to get.” Through an estate sale, they closed in July on a vacant home that hadn’t been updated since it was built in 1965. It had a crack on the side that stretched from the foundation to the third floor. “You could literally see inside the house from outside,” Thompson-Wright said. The new homeowners didn’t have to come up with more money for the extensive repair or take out a second loan. They financed both the purchase and renovations with a single home loan through the 203(k) program offered by the U.S. Department of Housing and Urban Development, a program that can allow the average home buyer to rehabilitate a property. It’s a key part of a federal plan to preserve the nation’s aging housing stock. Some local real estate professionals said more homebuyers are considering fixer-uppers because the supply of homes for sale is so low. Mortgages that combine money to buy a home with money to fix it up, including loans offered through Fannie Mae and Freddie Mac, are one option for these buyers, depending on the property, extent of work needed, and buyers’ financials. Ed Fallon, a Chester County-based mortgage consultant at Prosperity Home Mortgage, gives presentations about 203(k) loans at the invitation of real estate firms and said, “I probably did more in the first few months of this year than I did all of last year.” These types of loans still make up only a fraction of mortgages, and more interested borrowers and agents doesn’t necessarily mean more renovation loans. In the first three months of 2023, 26 Pennsylvania property buyers used 203(k) loans in the five-county region, compared with 61 in the first three months of 2022, according to the Department of Housing and Urban Development. Increasing the supply of affordable homes The department is trying to get more people to use its program and has been collecting feedback from lenders and consumers. In its call for public comment, HUD called the program “an important tool for community and neighborhood revitalization and the expansion of home ownership opportunities.” Some reasons these loans are attractive: They can make renovations affordable for buyers who struggled with their down payment and closing costs and don’t have more money to spend. They present an option when sellers don’t want to make repairs. They make a purchase possible when lenders won’t originate a standard mortgage because of the poor condition of a home. They add guidance and protections for buyers and can make the renovation process easier. They can give buyers immediate equity in their homes. Some reasons these loans aren’t more widely used: They require buyers and sellers who are willing to risk waiting a couple extra months to close a deal. Buyers have to be willing to pay higher interest rates and deal with the added stress of renovations. Lenders have to be willing to take on added risk. The success of the process depends on the availability and reliability of contractors. Removing barriers to programs such as 203(k), according to HUD, “can help support HUD’s goal of increasing the available supply of affordable housing in underserved communities.” In the competitive housing market of the last few years, buyers who wanted to use these types of loans had a hard time getting their offers accepted, said Art Verbit, Delaware County-based vice president of mortgage lending and a renovation specialist at Guaranteed Rate. “As the market has started to cool a little bit over the last six months or so, you’re seeing more interest,” he said. “And sellers and Realtors that are more willing.” The loans work best when homes need major work, and ideal properties are those owned by banks or sold through estate sales, Verbit said. “I tell people about 203(k)s all the time,” said Stacey Middleton, a Realtor with Berkshire Hathaway HomeServices Fox & Roach, Realtors based in Delaware County, “because it gives them an opportunity, like so many other products, that they don’t know about.” But Thompson-Wright was her first client to say yes. In March, contractors finished her home’s major renovations, including a new kitchen and main bathroom and new flooring, ceilings, and lighting. There’s added support for home buyers using renovation loans Thompson-Wright’s favorite part of the 203(k) program was the consultant who came with it and advised her throughout the renovation process, starting with an initial report laying out the work needed and estimated costs. These consultants, who report to loan officers, also can recommend trusted contractors to bid on projects. Thompson-Wright’s consultant reviewed her contractors’ work and released funds periodically as work was completed to her satisfaction. As someone who had no construction background, Thompson-Wright said, she felt protected against scams. “To have that added support, that security, it was like a comfort,” she said. Catherine Hall, executive director of the National Association of FHA Consultants and a 203(k) consultant based in Bucks County, Pennsylvania, said buyers often make the mistake of contacting consultants too late, which delays closing. She recommends buyers find one as soon as they decide to purchase a home that looks like it needs work. Consultants have been dropping out of the industry, and for the last three years, Hall has been trying to grow their numbers. She is in talks with HUD to get them raises, which she said they haven’t had since the 1970s. Hall said now is a great time for homebuyers to look at these rehabilitation loans, since homes in general are less affordable to the average buyer, and “the less expensive the home, the more it needs repairs.” Besides the crack running up Thompson-Wright’s home, contractors found cracks in the plumbing when they opened the ceilings to install lighting. Now that repairs and upgrades are finished, Thompson-Wright is glad she went with a fixer-upper. “I have more house for less money than less house that’s newly renovated that’s overpriced,” she said. © 2023 The Philadelphia Inquirer. Distributed by Tribune Content Agency, LLC.
2022 U.S. Property Taxes Rose Twice as Fast as 2021
siraanamwong / Getty Images APRIL 7, 2023 2022 U.S. Property Taxes Rose Twice as Fast as 2021 Southern state homeowners generally pay less, though. N.J. homeowners, for example, pay double the average amount Fla. homeowners pay ($4,100). NEW YORK – Property taxes increased twice as fast last year than in 2021 in the U.S., with many areas in the South and West increasing by more than the national average. Even after the gains, though, single-family-home property taxes remain much lower in the Sun Belt than in the Northeast, according to a report released by real estate data firm Attom on Thursday. On average, people in Florida paid less than $4,100 a year on property taxes in 2022 – not even half the bill for a typical New Jersey resident. In that state’s Essex and Bergen counties, the charge per homeowner exceeded $13,000 – more than $1,000 a month. Property taxes continued their never-ending climb last year, with wide disparities continuing from one area of the country to another, connected to varying costs, services, and tax bases,” Rob Barber, chief executive officer at Attom, said in the report. Although states in the South have traditionally been lower-cost, property taxes have surged in recent years. Many people flocked there – a trend accelerated by the pandemic – creating more need to improve infrastructure and services. But property taxes remain comparatively low, even in some of the most expensive parts of the region. In Palm Beach County, Florida, for instance, taxes jumped almost $2,000 in 3 years and averaged $7,525 for single-family homes last year, according to Attom. Nationwide, the average tax on single-family homes increased 3% in 2022, to $3,901, after rising 1.8% the previous year. The effective tax rate is the average annual property tax expressed as a percentage of the average estimated market value of homes in each geographic area. Among metropolitan areas with a population of at least 200,000 in 2022, 19 of the 20 cities with the highest effective tax rates were in the Northeast and Midwest. © Copyright 2023 The Daily Mail, all rights reserved
Mortgage rates fall, but low inventory haunts would be homebuyers
The 30-year fixed-rate mortgage (FRM) averaged 6.28% as of April 6, down from 6.32% recorded last week. One year ago, the 30-year FRM averaged 4.72%. Meanwhile, the 15-year fixed-rate mortgage averaged 5.64%, up from last week when it averaged 5.56%. At the same time in 2022, the 15-year FRM averaged 3.91%. Homes on Hollywood Beach and Channel Islands Harbor May 15, 2018 Channel Islands, Oxnard, Calif. | Getty Images "Mortgage rates continue to trend down entering the traditional spring homebuying season," said Sam Khater, Freddie Mac’s Chief Economist. "Unfortunately, those in the market to buy are facing a number of challenges, not the least of which is the low inventory of homes for sale, especially for aspiring first-time homebuyers." A cooling job market marked by tech layoffs, including those at Amazon and Apple, as well as Disney, along with fewer job openings has convinced the market the Federal Reserve will be able to pause rates soon. Jobless claims came in higher than expected Thursday, reinforcing the idea within the market that the Fed will relax with rate hikes before unemployment gets too bad. In an aerial view, homes sit on lots in a neighborhood on January 26, 2023 in Boca Raton, Florida. South Florida is currently one of the hottest real estate markets in America. (Joe Raedle/Getty Images / Getty Images) Among other factors, lenders rely on the current interest rates and also on the expected interest rate over the mortgage's lifetime when choosing what mortgage rates to offer. As the expected future interest rate falls it takes pressure off mortgage rates, allowing lenders to offer lower rates while still making a profit. 'Mansion Global' host Katrina Campins tells homebuyers it's not the right time to buy in the current market.
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